2nd quarter earnings are well on their way, and this week the markets are buried with almost 1,000 public companies reporting their results. One earnings report that investors are hungry for is GrubHub’s GRUB, which is reporting before the opening bell tomorrow, July 30th.
GRUB analysts are estimating an EPS of $0.30, which would represent a 40% decline from Q2 last year as both competition and pricing pressures surface. Sales are expected to be $318 million, which would represent a 32.5% expansion year-over-year.
Company & Industry Overview
GrubHub was started in 2004 as an alternative to paper menus when ordering takeout. The company quickly pivoted to become the nation’s leader in online & mobile food ordering & delivery through a number of well-timed acquisitions.
GrubHub has been able to demonstrate robust double-digit topline growth since it went public back in 2014 while remaining profitable. Third-party (3P) food delivery services are becoming increasingly competitive and already profitable firms have a distinct advantage over their unprofitable cohorts who are willing to hemorrhage funding to gain market share.
Top competitors include Postmates, Uber Eats UBER, and DoorDash, which has seen the largest growth in the past 3.5 years. Below is a chart from Second Measure that illustrates the saturating competition in 3P food delivery.
The key to remain a top player in this space moving forward is partnerships and exclusive delivery rights with restaurants. GrubHub is partnered with Yum Brands YUM, which includes Taco Bell, KFC, and Pizza Hut. GrubHub is also integrated with Yelp YELP, a heavily trafficked restaurant directory and review platform. The firm currently has “more than 85,000 partner restaurants in over 1,600 US cities and London”. Although these partnerships will likely not help with short-term profitability, they are locking in market-share for long-term consumer retention.
GrubHub reported 521,000 daily average Grubs (orders) in Q1, up 19% year-over-year. In Q2 this figure is expected to be 492,000, with the quarter-over-quarter decline being a product of seasonality. People get less food delivered as the weather warms.
Performance & Valuation
GRUB is essentially flat year-to-date as investors become increasingly cautious in the 3P food delivery category. DoorDash continues to gain share from GrubHub as its sales proliferate and its diner retention rates outpace GrubHub. Over the last 52-weeks, GRUB has lost roughly 40% of its value.
GRUB is trading at a 1.6x PEG, which is on the lower end of this valuations 5-year trend and below the software-services industries 2x PEG average.
GrubHub is expected to grow its topline by over 35% this year. A decline in profitability is also estimated due to the steepening competition. The topline is expected to expand by north of 20% for at least the next 3 years.
Online and Mobile 3P food delivery is going to continue to grow at a fast-pace as consumers become progressively reliant on technology for their needs. GrubHub only needs to hold on to its market share and ride this wave to show its shareholders strong returns. Their recent loss in market share and reduced diner retention is a concern moving forward with the company.
While looking over GRUB’s earnings report tomorrow morning keep your eyes peeled for increased customer retention as well as a topline growth beat. Management guidance is going to be important for this business due to uncertainty regarding its competitive edge.
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