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Grubhub (GRUB) Beats on Q4 Earnings, Partners Yum! Brands

Zacks Equity Research

Grubhub Inc. GRUB delivered fourth-quarter earnings of 37 cents per share, which beat the Zacks Consensus Estimate by six cents. The figure surged almost 61% on a year-over-year basis driven by robust top-line growth.

Revenues climbed 49.2% year over year to $205.1 million. Excluding Eat24, which was acquired from Yelp YELP in October 2017, revenues increased 37%.

Gross food sales increased 39.2% year over year to $1.14 billion. Excluding the acquisition of Eat24, gross food sales increased almost 22% with average order size up 4% during the quarter.

Net revenues as a percentage of gross food sales were 18.0%, up 120 basis points (bps) on a year-over-year basis but down 80 bps sequentially. The decline was primarily due to lower commission rate for Eat24 orders.
 

GrubHub Inc. Price, Consensus and EPS Surprise

 

GrubHub Inc. Price, Consensus and EPS Surprise | GrubHub Inc. Quote

 

As of Dec 31, 2017, active diners were 14.5 million, compared with 8.2 million in the year-ago quarter. Of these approximately 4 million diners were acquired through the Eat24 and Yelp platforms.

Daily Average Grubs (DAGs) were 392,500 compared with 292,500 reported in the year-ago quarter.

Recently, Grubhub announced a partnership with Yum! Brands YUM, under which the latter will invest $200 million in the former. Moreover, Grubhub is now the only national U.S. ordering partner for Yum! Brands. Under the partnership, Grubhub will provide a comprehensive online ordering solution for KFC and Taco Bell franchises, sub-divisions of Yum! Brands.

2017 at a Glance
 
In 2017, earnings were $1.20 per share, up 34.8% over 2016.

Revenues increased 38.5% year over year to $683.1 million. Gross food sales rose 26.2% year over year to $3.78 billion.

Grubhub believes the market for takeout in the United States is greater than $200 billion in terms of consumer spending. The company believes that partnerships with Yelp and Yum! Brands will help it to rapidly penetrate this market in the long haul.

Operating Details

In fourth-quarter 2017, total costs & expenses as percentage of revenues increased 400 basis points (bps) on a year-over-year basis to 87.2% in the reported quarter.

Operations & support, sales & marketing and depreciation & amortization expenses increased 220 bps, 60 bps and 190 bps, respectively. These were partially offset by 60 bps and 10 bps decline in technology and general & administrative expenses, respectively.

Adjusted EBITDA margin declined 70 bps to 27.8%. Adjusted EBITDA per order was $1.58, up 8% from the year-ago quarter.

Operating margin contracted 400 bps to 12.8%.

Guidance

For first-quarter 2018, GrubHub forecasts revenues between $224 million and $232 million. Adjusted EBITDA is expected to be within $54-$60 million.

For 2018, GrubHub forecasts revenues between $910 million and $960 million. Adjusted EBITDA is expected to be within $225-$255 million.

Grubhub plans to expand into 100 new delivery markets throughout 2018. Management stated these new markets will take some time generate volumes. Hence, the upfront cost and initial requirement of driver capacity are likely to hurt profitability.

The company expects to invest approximately $10 million in 2018 to ramp capacity quickly. This will help it to maximize the multiyear impact of the Yum partnership through improvement in orders, diners and EBITDA.

Zacks Rank & Other Stocks to Consider

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

Micron Technology MU is another stock worth considering in the broader technology sector. The stock sports the same Zacks rank as Grubhub.

Long-term earnings growth rate for Micron is currently pegged at 10%.

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Yelp Inc. (YELP) : Free Stock Analysis Report
 
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