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Grubhub Soars On Partnership With Yum Brands

Stock (Symbol)

Grubhub (GRUB)

Stock Price

$94

Sector
Food & Necessities
Data is as of
February 15, 2018
Expected to Report
Apr 18
Company Description
Grubhub Inc. provides an online and mobile platform for restaurant pick-up and delivery orders. Its products include Grubhub and Seamless Mobile Applications and Mobile Website, Grubhub and Seamless Websites, Corporate Program, Delivery, Allmenus and MenuPages, Grubhub for Restaurants, and Restaurant Websites. As of December 31, 2016, the Company connected more than 50,000 local restaurants with diners in more than 1,100 cities across the United States. The Company provides diners on the platform with a personalized platform that helps them search for local restaurants and then place an order from an Internet-connected device. It also provides diners with information about their orders and status. Source: Thomson Financial.
Sharek’s Take
David SharekGrubhub (GRUB) shot up 30% after it reported last qtr’s earnings and announced a new partnership with Yum! Brands to provide ordering solutions for Taco Bell and KFC. Grubhub operates the leading online and mobile platform for restaurant pick up and delivery orders. Grubhub doesn’t charge restaurants upfront or subscription fees and only gets paid for the orders the company generates. Grubhub also provides delivery services to restaurants that don’t have their own drivers. Restaurants pay a commision on orders placed through the Grubhub platform. Grubhub has more than 75,000 restaurants on its app in more than 1100 U.S. cities serving 10 million customers. The company utilizes the following key business metrics:

  • Active Diners: the number of accounts an order has been placed with during the last 12 months. Active Diners have grown as follows: 2012 1 million, 2013 3 million, 2014 5 million, 2015 7 million, 2016 8 million, 2017 10 million.
  • Daily Average Grubs: number of orders placed per day, and have grown as follows: 2012 62,000, 2013 108,000, 2014 183,000, 2015 227,000, 2016 275,000, 2017 Q3 304,000.

The company has grown both organically and via acquisitions. Grubhub was founded in 2004, acquired Seamless in 2013, acquired DiningIn, Restaurants on the Run and Delivered Dish in 2015, LABite in 2016 and last year gobbled up Foodler, OrderUp and Yelp’s Eat 24. The Foodler deal closed last August, OrderUp in September and Eat24 in October, which commenced its partnership with Yelp. These dates are important as the company is getting a boost in year-over-year revenue from these deals. GRUB beat analyst estimates of 35% profit growth when it delivered 61% growth. So now the stock has the catalyst of KFC/Taco Bell and rapidly growing profits. That’s a recipe for success. Unfortunately, the stock is too-high to buy right now, as its more than double what it was a year-ago. Also, the P/E of 57 is high. Thus, Grubhub is on the radar, I should have already had it in the Growth Portfolio but I obviously didn’t anticipate the Yum! deal.

One Year Chart
Profits up 61% last qtr. Sales up 50%. Keep in mind that’s not organic growth, it’s growth through acquisitions. So profits are growing great right now, and soon KFC/Taco Bell will bring more growth opportunity. Qtrly profit growth Estimates are 35%, 54%, 46% and 24%. The company has beaten the street in three of the last 4 qtrs (met the other one) so GRUB could grow 50% the next 3 qtrs. And although the P/E of 57 is high, one might debate the stock is worth it. But what’s dangerous is this stock chart. Four breakouts in one year, that’s a lot. I’m waiting for the stock to settle down. The Est. LTG of 23% a year is very good, but not great.
Fair Value
I’m taking my Fair Value up to 50x earnings, but the stock has still surpassed my 2018 mark. 2018 profit estimates have increased from $1.37 to $1.48 and now $1.64 the past few qtrs. That’s great, and with the other positive attributes this makes GRUB a premier stock in the market today.
Bottom Line
Grubhub has established itself as the premier app for ordering food and having it delivered from restaurants. With people tending to stay at home more often this stock is timely right now. Recent acquisitions have helped boost profits, and this deal with Yum! brands gives the stock a catalyst for future growth. But this stock is clearly extended, and I’ll wait for a buying opportunity. GRUB is on my radar for the Growth Portfolio.
Power Rankings
Growth Stock Portfolio

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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