Under the global agreement, both the Uber Eats and Postmates apps will include Domino’s delivery menus. Yet the aggregators, while they will serve as order platforms, won’t be delivering the food themselves. Domino’s is opting to stick with its six-decade old tradition of using its own delivery fleet. Not ready to relinquish transportation control, the hookup will give pizza lovers customers yet another way to order their favorite appetizers, pies and desserts — but it’ll still arrive courtesy of Domino’s “trained delivery experts.”
From Domino’s perspective, the move marks a new phase of growth that makes strategic sense. Its research revealed that accepting orders from the Uber Eats Marketplace will allow the company to tap into a new customer base — and ultimately record higher sales.
Four U.S. markets will serve as the project’s testing grounds with a nationwide rollout anticipated by year end. Internationally, the companies’ common presence in 27 international markets could lead to 70% of Domino’s stores accepting Uber Eats or Postmates orders.
For Uber, this appears to be a milder win. Becoming the exclusive third-party platform for the world’s largest pizza delivery company adds a big fish — but it doesn’t add valuable delivery fees. It's unclear what financial benefit Uber will gain beyond what it earns for hosting local Domino’s menus and the use of its order processing technology. The Domino’s deal, while positive for brand image, doesn’t stand to be as lucrative as its recently formed agreement with Little Caesars.
How Is Wall Street Responding to Domino's Uber Deal?
Since the Uber news, Wall Street analysts have held firm on their Domino’s views — with one exception. Northcoast Research upgraded the stock to Buy on Wednesday and gave it a Street-high $430 price target. However, since Domino’s shares jumped 11% on Wednesday, even the Street’s most optimistic target implies just 10% upside.
Wells Fargo, on the other hand, is less than sold on the Uber agreement. The firm maintained an Equal Weight rating due to uncertainty around Domino’s pricing and profitability. It also noted that the company will face a difficult year-over-year comparison when it reports second-quarter results on July 24th. The current consensus forecast implies flat revenues and 8% earnings per share (EPS) growth.
Like others in the quick service restaurant (QSR) industry, Domino’s is dealing with slower order activity tied to consumer inflation and competitors’ increasing use of third-party delivery apps. But with the company finally embracing Uber Eats and Postmates, gaining access to more customers could drive outperformance and more bullish Street sentiment.
Analysts are likely holding off on adjusting their models until after the Q2 earnings release. When they do, it’ll be interesting to see how the Uber partnership impacts their growth estimates and stock targets. As it stands now, the $359 consensus target isn’t giving Domino’s much credit for breaking its Uber stubbornness.
Does Uber Have More Upside?
Understandably, Uber had a far more muted reaction to the Domino's news, advancing less than 1% on Wednesday. The stock has, however, more than doubled over the last 12 months due to a variety of factors. Ridesharing and carpooling bookings are rebounding sharply as consumers regain comfort with mobility solutions in the post-pandemic economy. Delivery bookings haven’t been as strong but also appear to be firmly in growth mode.
With both core businesses humming along nicely, analysts are forecasting that Uber will flip to profitability by the third quarter of this year. In a major turnaround from last year, the world’s largest ride-hailing business is expected to breakeven for the year before generating almost $1.00 in EPS in 2024.
One source of outperformance may be Drizly, Uber’s acquired on-demand alcohol delivery marketplace that is starting to expand nationally. Drizly’s integration with Uber Eats could create significant cross-sell sales as food orderers and party hosts discover a convenient, safer way to get beer, wine and spirits.
Despite the strong rebound, Wall Street remains incredibly bullish on Uber. A perfect 31 of 31 analysts call it a Buy and the average price target suggests another 18% upside.
Bottom line: Domino’s will likely reap the greater financial benefit from the Uber deal. But following this week’s stock moves, Uber probably has more room to run over the next 12 months.