Read Our Disclaimer And Privacy Policy Before Joining. Your Info Is Never Shared. Unsubscribe Anytime.

GrubHub (GRUB): Will it Deliver?

Are you familiar with GrubHub Inc. (GRUB)? It’s an online and mobile food ordering and delivery app. Instead of phoning your order into a restaurant — and facing the potential of wasting time with having to be put on hold, repeat yourself, etc. — you can simply order online, where the firm has hooked up with about 35,000 restaurants in roughly 900 cities.

It’s a simple four-step process. You search for the food you want in your area for takeout or delivery (GrubHub will find the best deals for you), pick the restaurant you want to order from (you can browse ratings and reviews prior to doing so), order, and then wait for your meal to show up. (For more, see: Investors Circle GrubHub After Upgrade.)

The only catch is that there’s a minimum order per restaurant, which makes sense: it wouldn't be lucrative for a breakfast joint to deliver just one toasted bagel with a schmear.

Now that we've established that this is a good concept because it improves convenience for consumers, is it working?

By the Numbers

In the second quarter, revenue shot up 77% year over year to $88 million while net income skyrocketed 247% to $9.4 million. Here are some other interesting stats, all year over year:

  • The number of active diners using GrubHub's services increased 42% to 5.93 million
  • Average daily orders rose 26% to 220,100
  • Food sales went up 34% to $568 million

CEO Matt Maloney stated that “the company saw significant growth in what is usually a slow second quarter” and that there was a “strong performance in all of our markets across the country.” (For more, see: GrubHub's Second Quarter Profit Surges.)

That’s an interesting point because it relates to a smart move the company made back in 2013, which was to merge with its biggest competitor, Seamless. Both companies were performing well in different geographies. Seamless had a very strong presence in New York City. By merging, it not only put two highly effective companies together, but it negated the need for this newly-formed entity to increase marketing in the New York area since a strong presence had already been established.

Competition still exists, however. For example, Yelp Inc. (YELP) acquired Eat24 earlier this year for $134 million in cash and stock; Eat24.com has a similar interface to GrubHub. One way to determine which one is holding an edge is to compare their most-visited site rankings via analytics tool Alexa. In this case, it’s not even close.

In October 2014, GrubHub.com had a Global Traffic Ranking of 10,000. On July 30, 2015, it was at 3,941.

In October 2014, Eat24.com had a Global Traffic Ranking of 32,000. On July 30, 2015, it had hit 44,207. (For more, see: What Average Annual Return Has the Internet Sector Historically Generated?)

If you want to take a big-picture look at GrubHub’s top- and bottom-line performance, consider its recent annual performance:

GRUB

2012

2013

2014

Revenue

$82 million

$137 million

$253 million

Net Income

$7.9 million

$6.7 million

$24.3 million

GrubHub also has a debt-to-equity ratio of zero, which will make it easier to weather an economic storm. This doesn’t mean the stock will appreciate in a bear market environment, though. In fact, the one mistake GrubHub might have made was going public — in April of 2014 — at the wrong time.

A Positive Dip

An analyst at Cowen recently downgraded GrubHub to “Market Perform” from “Outperform” and moved its price target from $39 to $30, citing increased innovative competition in the online food ordering market. This led to a 10% plunge in the stock price, which turned out to be a buying opportunity. GrubHub didn’t just beat expectations for its most recent quarterly report, it also raised expectations for third-quarter revenue to between $85 million and $87 million, which hits above analyst consensus of $85.5 million.

Other analysts are bullish: Brean Capital recently reiterated its “Buy” sentiment and maintained a $50 price target.

The Bottom Line

GrubHub is a well-run company with quality leadership, a growing brand, and plenty of upside potential. It should be a long-term winner. There could be some turbulent times ahead for the stock due to external market conditions, but if you’re solely focused on investing in good companies for the long haul without worrying about broader market conditions, then GrubHub should be on your radar. (For more, see: How to Value an Internet Stock.)

Dan Moskowitz does not have any positions in GRUB or YELP.

Posted: admin

leave a comment