GrubHub (GRUB) is trading sharply higher today (+17%) after reporting strong Q1 results this morning. In case you're not familiar, GrubHub is the largest online and mobile platform for takeout and delivery of takeout restaurant orders. It connects diners with over 50,000 independent restaurants. The company's primary revenue source is a 15% commission fee that is paid by the restaurant on each order.
While GRUB is a first-mover in this segment, competition has intensified in recent years, so the company has been looking to reignite growth by spending heavily on building out its delivery service that targets chain restaurants. While profit margins are much higher for their service without delivery, the company says that adding delivery is a key part of their plan for accelerating top-line growth. The Grubhub portfolio of brands includes Grubhub, Seamless, AllMenus, MenuPages, LAbite, Restaurants on the Run, DiningIn and Delivered Dish.
Turning to the Q1 results, non-GAAP EPS jumped 45% YoY to $0.29, which was a good bit better than market expectations. Revenue rose 39.1% year/year to $156.1 mln, which was slightly above the higher end of prior guidance of $1481-56 mln. Adjusted EBITDA rose 32% YoY to $42.7 mln vs. $37-42 mln prior guidance.
The guidance was quite strong as well as Q2 revenue is expected in the $153-161 mln range while Q2 adjusted EBITDA is expected to come in at $38-44 mln. Full year revenue guidance was upped slightly to $632-662 mln vs prior guidance of $620-660 mln. Full year adjusted EBITDA guidance is now at $170-190 mln vs prior guidance of $165-190 mln.
In terms of Q1 adjusted EBITDA margins, it dipped slightly to 27.3% from 28.8% in the prior year period. GRUB margins have been declining in recent years as the company began investing meaningfully in its own delivery capabilities (instead of relying on the restaurants to deliver food). The delivery buildout is having some impact on margins but it makes sense to add a delivery component over the long term.
The company does not provide a lot of detail in the press release, it's usually on the call where they go into more detail. The call starts at 10am ET. However, they did say on their Q4 call in February that they intend to press their market-leading position in food delivery in 2017. GRUB has also recently upgraded its mobile app with new features like Map-Based Search, Preordering, and Express Reorder. GRUB also made significant enhancements to its sort algorithm, added thousands of food images to the site, and improved new diner conversion on its home page and landing pages.
Overall, this was a very strong quarter for GRUB. After a modest EPS miss in Q4, it was good to see GRUB rebound with a strong EPS upside quarter in Q1. Also, the stock has a high short interest so a short squeeze is helping the stock today as well. From a broader perspective, GRUB is quite profitable with big EBITDA margins, it generates a good amount of cash, and has no LT debt. Also, GRUB sees a lot of industry growth potential as online/app orders represent just 5% of the entire takeout/delivery market. Also, they seem to be keeping competition at bay for the time being. Finally, the balance sheet remains in very good shape with $361 mln in cash/inv, or $4.15 per share, with no LT debt.