Reiterate Buys on DHER/JET with refreshed TAM/Unit Economics analyses We are constructive on global food delivery. Our deep-dive into 14 leading delivery markets points to >20% CAGR for the industry over the five years to 2024e. This is rooted in (1) growing online penetration, (2) greater order frequency driven by cultural shifts, and (3) rising order values. Comprehensive UBS Evidence Lab data provides unique insights into the key drivers: consumer behaviour (3 datasets), brand attributes (3), demand (4) and supply (7). Data analysis shows that restaurant inventory has a stronger relation with revenue growth than app downloads or search trends.

Unit economics analysis and evidence points to logistics profitability inflection The profitability of the marketplace is well understood, but evidence from operators supports our view that logistics profitability is at an inflection point. Our unit economics analysis suggests logistics can be profitable in several markets, but higher costs and potential regulation are challenges in Europe. Hybrid models can achieve LT EBITDA margins of 20-40% (5-7% of GMV). Logistics helps access greater wallet share in adjacent categories like grocery ($7.6trn), while denser networks drive better margins.

Investments will likely cloud path to profitability; consolidation a key driver Clear market share structures are emerging organically or through consolidation, leading us to expect a steady decline in marketing investment. But the UK and the US could be tough in 2021, given Just Eat Takeaway’s (JET) rebased profitability in the UK/likely investments into GRUB in the US. Investments in grocery and newer regions cloud the near-term profit picture for Delivery Hero (DHER). With the emergence of four major groups ex China (DASH/DHER/JET/UBER) we see global consolidation as phase 3 after in-market (phase 1) and cross-border (phase 2) efforts.

Robust structural thesis behind our key Buy ideas globally The global food delivery sector is on 7.4x EV/sales, slightly below its LT average and at c20% discount to the global digital marketplaces. We see robust LT structural thesis behind our ideas and urge investors to look through the near-term share price volatility.

In Europe, we reiterate Buy ratings on DHER (LINK) and JET (LINK). Globally, our team's key ideas are: Meituan (Buy), Uber (Buy), Prosus/Naspers (Buy) and Mail.Ru (Buy).