UberEats, DoorDash, And Cost Hikes Will Weaken Future Prospects

Key Takeaways

• Shifting consumer tastes, regulatory costs, and fierce delivery competition threaten Domino's revenue, market share, and profitability prospects.
  
• Franchisee financial pressure and digital risks are limiting unit growth and exposing the company to operational and reputational dangers.
  
• Strategic cost savings, focus on everyday value, and digital investments are driving stronger margins and customer loyalty, supported by diversified geographic performance and operational efficiencies.

Catalysts

Operates retail food outlets.

• The accelerating shift in consumer preferences towards health, wellness, and alternative cuisines is likely to diminish demand for traditional fast food and pizza over time, creating a structural headwind for Domino's core offering and threatening a prolonged erosion of revenue.
  
• The proliferation of third-party delivery platforms and food aggregators, such as UberEats and DoorDash, is undermining Domino's traditional delivery moat, erasing its convenience advantage and squeezing market share, which will likely result in increased discounting, lower average order values, and lost customers, further pressuring revenue growth.
  
• Increased regulatory scrutiny surrounding food standards, labor conditions, and environmental impact is expected to drive up operating and compliance costs across Domino's global footprint, particularly in markets like Europe and Asia, which will likely compress net margins and reduce overall profitability in the medium to long term.
  
• Persistent franchisee margin pressure, driven by rising input and labor costs as well as slowing same-store sales in key mature regions such as ANZ and Europe, is already forcing widespread store closures and limiting new store openings, putting a ceiling on unit growth and constraining future earnings expansion.
  
• Domino's increasing reliance on complex digital infrastructure exposes the company to a heightened risk of cyber-attacks and significant operational disruptions, which, if materialized, could lead to sudden revenue losses, reputational damage, and further deterioration in earnings and free cash flow.

Domino's Pizza Enterprises Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Domino's Pizza Enterprises compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Domino's Pizza Enterprises's revenue will decrease by 0.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.2% today to 5.9% in 3 years time.
• The bearish analysts expect earnings to reach A$136.0 million (and earnings per share of A$1.4) by about September 2028, up from A$-3.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from -360.0x today. This future PE is lower than the current PE for the AU Hospitality industry at 35.2x.
• Analysts expect the number of shares outstanding to grow by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.59%, as per the Simply Wall St company report.

Domino's Pizza Enterprises Future Earnings Per Share Growth

Risks

• Domino's Pizza Enterprises continues to demonstrate significant operational resilience by maintaining and even improving margins in the face of heightened competition from aggregators such as Uber Eats and DoorDash, and leadership remains confident the company has preserved or grown market share, suggesting stable to rising future revenues and profits.
  
• There is a substantial cost optimization and overhead reduction program underway, targeting key expense centers like IT and marketing, with management asserting these will produce permanent structural savings, which are being reinvested to increase the efficiency of marketing spend and improve both franchisee and group profitability, supporting near-term margin recovery and potential earnings growth.
  
• A strategic shift from heavy discounting to a focus on transparent, everyday value pricing and menu simplification is expected to boost franchisee margins, make customer offers easier to understand, and ultimately strengthen customer loyalty and average order value, which bodes well for higher unit economics and sustainable earnings improvement.
  
• The company's multi-country footprint provides diversified growth opportunities: while Asia, particularly Japan, has underperformed, there is robust EBIT and sales growth in Europe (Benelux and Germany), improvement in Australia, and early signs of recovery in France, all suggesting that geographic diversification will help stabilize and grow group revenues and earnings over the longer term.
  
• Aggressive investments in technology (ordering platforms, supply chain systems) and reallocation of resources to in-market support and operational excellence are unlocking further efficiencies, enhancing execution, and positioning Domino's Pizza Enterprises to capitalize on secular trends such as the shift to digital ordering, which is likely to result in higher transaction frequencies, improved customer retention, and better net margins.

Valuation

• The assumed bearish price target for Domino's Pizza Enterprises is A$13.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Domino's Pizza Enterprises's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$41.0, and the most bearish reporting a price target of just A$13.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$2.3 billion, earnings will come to A$136.0 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of A$14.12, the bearish analyst price target of A$13.0 is 8.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.