GrubHub (GRUB 136.87, +27.81, +25.50%) is trading sharply higher today after reporting Q2 results.
GrubHub is the largest online and mobile platform for
takeout and delivery of takeout restaurant orders. It connects diners with over
75,000 independent restaurants. The company's primary revenue source is a 15%
commission fee that is paid by the restaurant on each order.
While GRUB, which went public in 2014, is a first-mover in this segment, competition has intensified in recent years, as ridesharing companies like Uber entering the delivery space have added pressure alongside notable regional names. The company has looked to reignite growth by spending heavily on building out its delivery service, targeting chain restaurants and other restaurants that do not offer delivery services of their own. While profit margins are much higher for their service without delivery, adding delivery has been a key component of the company’s plans for accelerating top-line growth in recent years.
A major strategy for GRUB has involved entering into partnerships with crucial online players. For example, in Summer 2017, GRUB announced partnerships with Yelp (YELP) and Groupon (GRPN). GrubHub acquired Yelp's Eat24 business (a rival to GRUB), and Yelp integrated online ordering from all GrubHub restaurants onto its extensive listing platform. Together, GrubHub and Eat24 have formed the largest network of restaurants offering online and mobile food ordering in the U.S. They provide diners with the ability to order from 75,000 restaurants through either GrubHub's or Yelp's interface. Meanwhile, its deal with Groupon brought food delivery to Groupon customers.
Then, in February of 2018, GRUB announced a deal with Yum! Brands (YUM) to provide online ordering and delivering for KFC and Taco Bell orders. YUM also acquired a $200 mln stake in GRUB as part of the deal. In May 2018, GRUB announced a partnership with Jack in the Box (JACK) to provide delivery for hundreds of locations. Any color on the progress of these deals or potential new partners would be of high importance to investors.
In addition to earnings, GRUB is also announcing today that it will acquire LevelUp, which provides a mobile platform that will make it easier for restaurants like KFC, Taco Bell, Bareburger, and Roti to integrate with the Grubhub marketplace. LevelUp also accelerates Grubhub's existing point-of-sale integration capabilities and provides restaurants with CRM and analytical tools to help them drive more diner traffic to their platform. Grubhub will pay $390 mln in cash to acquire LevelUp.
Turning to the Q2 earnings report, non-GAAP EPS rose 99% year/year to $0.50, which was much better than market expectations. Revenues rose 50.9% year/year to $239.7 mln, above prior guidance of $228-236 mln. Adjusted EBITDA is a key metric for GRUB, and that came in at $67.4 mln, up 61% year/year and above prior guidance of $59-65 mln. In terms of Q3 guidance, GRUB expects revenue of $232-240 mln, which is above market expectations. Adjusted EBITDA in Q3 is expected at $58-64 mln. Full year revenue guidance was bumped up to $966-983 mln from prior guidance of $930-965 mln. Furthermore, full year adjusted EBITDA guidance was increased to $256-270 mln from $242-262 mln.
In terms of Q2 operating metrics, the company reported that Active Diners numbered 15.6 mln, a 70% year/year increase. Daily Average Grubs (DAGs) were 423,200, a 35% year/year increase. Gross Food Sales were $1.2 bln, a 39% year/year increase. GRUB calls Q2 a standout quarter, highlighted by a record number of new diners trying Grubhub for the first time.
Post-release, the stock is trading nicely higher, which should be a comfort to investors after GRUB fell following Q1 results on May 1. Also, it seems that investors are satisfied with the LevelUp acquisition. GRUB has been accelerating its partnership deals, and LevelUp's platform seems to fit right in with that by making it easier for these partners to integrate onto the GrubHub marketplace.