Grubhub (GRUB) Hits 52-Week High, Diner Base Grows Steadily

Shares of Grubhub Inc. GRUB hit a new 52-week high of $70.74, eventually closing a bit lower at $70.34 on Dec 11.

The company’s diverse restaurant base, broader marketing reach and continuous improvement in products are helping it gain new diners. This was evident in the third quarter as Active Diners increased 28% year over year to 9.81 million. Management stated that this was the highest rate of organic diner growth in the last 1.5 years.

Moreover, Daily Average Grubs (DAGs) improved 14% from the year-ago quarter to 304,500. Further, Gross Food Sales were $867 million, up 18% year over year.

Notably, the stock has returned 86.9% year to date, substantially outperforming its industry’s rally of 24.5%. The stock has a market cap of $5.91 billion.

 

 

Currently, Grubhub carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Acquisitions to Drive Growth

GrubHub’s recently completed acquisitions of Eat24, OrderUp and Boston-based Foodler have broadened its portfolio of restaurants.
 

GrubHub Inc. Revenue (TTM)

 

GrubHub Inc. Revenue (TTM) | GrubHub Inc. Quote

 

The addition of Eat24 strengthens the company’s position across Tier 1 markets and almost doubles business in a large number of Tier 2 markets. Management stated the acquisition helped it gain new customers in markets like Miami, San Diego, Seattle, Las Vegas, Dallas and Houston.

Despite some attrition risks, Grubhub has shut down the Foodler site and apps. Management believes that the redirected diner traffic will be attracted by a better selection of restaurants and a much improved order interface. This migration will ultimately boost active diner base in the Boston market.

Partnerships Expanding Restaurant Base

Moreover, Grubhub’s expansion outside the Tier 1 market is a positive. The company’s restaurant network has expanded 60% over the last 12 months (at the end of third-quarter 2017), with significant growth coming from the Tier 2 and Tier 3 markets. Grubhub’s delivery is available in around 80 markets in more than 800 cities.

We believe that Grubhub’s partnerships with the likes of Groupon, Yelp YELP and The Cheesecake Factory will continue to drive the customer base.

Management stated that Yelp’s strong consumer awareness, diner traffic and high intent to order delivery provides a successful channel for Eat24. The company is currently in the process of adding its 30K restaurants to the Yelp platform.

Moreover, solid relationships with existing chains like Red Robin Gourmet Burgers, BJ's and QDOBA are significant growth drivers.

Management stated that partnership with Facebook FB is still in early stage and it doesn't have much expectation in the near term. We believe that the social network’s staggering user base (Monthly Active Users of 2.07 billion) presents significant growth opportunity for Grubhub in the long haul.

Estimate Revisions

Over the last 30 days, the Zacks Consensus Estimate for fiscal 2017 has increased by a penny to $1.14, which represents year-over-year growth of 27.8%. The Zacks Consensus Estimate for revenues is currently pegged at $679.4 million, up 37.7%.

Moreover, the Zacks Consensus Estimate for fiscal 2018 has increased by 4 cents to $1.45 over the same time frame. Consensus estimate for revenues is currently pegged at $929.3 million, up 36.8%.

A Better Pick

Baidu BIDU, with a Zacks Rank #2 (Buy), is a stock worth considering in the broader technology sector. Long-term earnings growth for the company is currently pegged at 23.73%.

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