GRUB

I was wondering if GRUB is ever discussed as a high growth holding on this forum.

GRUB unlike many others is also making a decent profit (by this board’s standards lol)

Also, it has pretty decent growth by this board’s standards.

According to the links here:

https://investors.grubhub.com/investors/press-releases/defau…

Here are the YoY growths starting with most recent quarters and going back

Q3-18 52% to $247 million
Q2-18 51% to $240 million
Q1-18 49% to $232.6 million
Q4-17 49% to $205 million
Q3-17 32% to $163 million
Q2-17 32% to $159 million

P/S using the above and market cap of $7 billion is 7.57
P/E using TTM EPS $1.84 and P of $77 is only 41.84 (mind blowing)

What they do is, they own seamless.com and grubhub.com. This competes with doordash and uber eats.

They enable restaurants to get online and accept customer food orders from there. Customers only need to store their credit cards in one place (on Grub’s website) and dont need to hand it over on the phone to restaurants. Second advantage is, customers can search a wide array of restaurants in their area, read reviews, and place the order from single place. Another advantage is, it remembers your order history, so you can simply re-order. You dont have to call the restaurant, face busy lines, or deal with incorrect orders due to miscommunication. It is very convenient and I have used it quite a bit, especially when I am in NYC. They also let you sort by restaurants that will deliver as opposed to pickup only.

How do they make money? Their revenue is the commission they deduct on food orders. They actually sold $1.2 billion of food last quarter, and out of that, their own revenue is $247 million, i.e 20.5% of that. That’s how reenue they booked.

I have spoken to people in the industry associated with restaurants. They hate the fees, but obviously have no choice. TI find the model awfully similar to Priceline, Expedia and Booking. Its different from the customers point of view, but from my point of view as a stock-holder of BKNG and GRUB, I find similarities and equal potential. Booking enables a hotel to improve their occupancy and in return earns a hefty commission (I have spoken to couple of hotel owners). GRUB does the same thing to restaurants. If a restaurant needs the incremental sales,they have to be on Seamless/grubhub platforms. Otherwise, they can miss out on those incremental dollars. Grub just lends out its technology platform and earns the commission.

From the sales growth history, the business seems to be doing great.

I have been in it for a while but failed to cash out near the peak. But I think this is a long-term holding and there is no point in cashing out too early and missing the forest for the trees.

Huddaman

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Huddaman,
Why has it gone down so much? It’s down over 90%. I like the accelerating revenue. Thanks for the idea.

Andy

1 Like

The accelerating revenue is great. I’ve confirmed that. Question, what gives on the declining margins given the accelerating revenue? Where are the economies of scale? Most troubling (to me anyway) is the declining GM. Perhaps there’s an explanation?

Quarter Gross margin ebitdamargin opmargin netmargin
0 2016Q4 62.4% 23.6% 16.4% 9.9%
1 2017Q1 61.9% 22.3% 15.9% 11.3%
2 2017Q2 60.4% 20.3% 13.7% 9.3%
3 2017Q3 59.9% 18.2% 10.5% 8.0%
4 2017Q4 60.2% 21.5% 12.3% 26.1%
5 2018Q1 58.6% 22.6% 13.6% 13.2%
6 2018Q2 57.3% 22.6% 14.3% 12.6%
7 2018Q3 54.9% 17.3% 8.8% 9.2%
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Hi Andy,

Grub appears to be down close to 50% from its high of around $150 to $76.

I do not own GRUB, but they sure are growing like wildfire, and accelerating growth despite Q3 being a seasonally slower quarter.

Seems like the stock has been clobbered due to:

  1. Company announcing they will continue to spend money in order to grow, and thus lowered EBITDA forecasts. (seems prudent to me, but what do I know?)

  2. Worries over competition from Uber Eats, Doordash, and even Square’s Caviar. Grub still has the leading market share of 34.4%, Uber Eats 28%, Doordash 18%, Postmates 12% and Caviar 3.5%.

  3. Lots of high flyers have been trashed since October, like Square and many others despite posting fantastic results.

Although I do not believe GRUB is a recommendation in any Fool service (correct me if I am wrong), I did find lots of Fool.com articles if you bring up the GRUB page, and scroll down a bit. I found them helpful to at least learn about what has been happening recently.

https://www.fool.com/premium/stock-advisor/company/NYSE/GRUB…

Seems to me it would be a time to add or start a small position rather than selling. Lots of competition here, but I see no reason why there would/could not be multiple winners in this arena.

Best,
Matt

8 Likes

Current price is $77. For it to go down 90%, the peak price should have been $770. That was not the case. Peak was $149. This year. It’s arill up 7% YTD.

Good observation regarding declining GM. I didn’t notice that. I do not know why. I am not even sure GM applies here. They don’t have cost of goods sold. They directly have operating expenses. Which were 91% of rev in latest qtr’s revenue

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Matt & Others,

First of all thank you for engaging with me on this board about GRUB.

It appears to be a hidden gem recommendation. https://www.fool.com/premium/hidden-gems/coverage/1008/cover…

It appears to be a Jan-25-2018 recommendation when the stock was at $73.40. Since then it has doubled once and then cut into half after that.

I first brought GRUB to RB’s attention on 2/23/2016 https://discussion.fool.com/1069/grubhub-32128842.aspx when the stock was at $22.04. Active Diners were 6.75 million, revenue had incresed 36% to $100 million in their most recent quarter.

I believe the first time I learnt about seamless.com was around 2010 when it was popular with my company. It allowed employees to order food after 7 PM using their internal single sign on id. No need to separately signup to seamless. Back then seamless was not owned by grubhub. Since then starting 2012, I signed up myself and have ordered lunch with my own money many times. I tried a small competitor at the time delivery.com because a friend sent me a coupon. I quickly realized, that seamless/grub had the first mover advantage. Delivery.com at the time didnt have a rich network. What that meant is, customers who try delivery.com while its still revving up wouldnt quickly return after seeing sparse selection.

In the long run, doordash, ubereats and others will all have the same restaurant collection. It takes time to attract customers. Customers like me who are happy with seamless.com will continue to use it. Some might dabble with competitors, just like we all use booking, expedia, hotels etc. But EXPE and BKNG have made a lot of money for their shareholders inspite of competing with each other (another notable examlple is PEP and KO. Point is, competition doesnt mean end of the world)

https://cdn-images- 1.medium.com/max/1600/1*eP_tO-hF92K3fo09yUdXQA.png (https://medium.com/edison-discovers/in-us-food-delivery-wars…)

I think you cannot bet the farm on GRUB. But it sure is attractive at $7 billion market cap with healthy revenue growth and some profits too. While it can always go down, I can see potential upside and multi-baggar in the making. Its already a 3.5 baggar inspite getting cut into half since I first pitched it to the Rule Breakers (where it was ignored)

Just remember, PCLN/BKNG was trading in its $20s around 2004 and now is it $1800+. This one may not be as spectacular, but even if it goes up from $75 to $300 in 10 years, I will be very happy.

4 Likes

Have been looking at Grub for a while.

Big concern I have had is their recent (last two years) expansion has come by acquisitions rather than organic.

It’s unclear to me how much organic growth they can sustain - although I believe they do share organic growth number.

It certainly is attractive valuation right now.

nilvest,

That’s an excellent point, although I think most of the recent acquisitions haven’t contributed to major growth. Please correct me if I am wrong by posting the effects.

I feel, one of their most important acqusations was in 2013 when they acquired Seamles. Otherwise I would have probably not been interested in buying GRUBHUB in the first place. https://media.grubhub.com/media/press-releases/press-release…

In an ideal world, Grub should try and buy or merge with doordash. That would be terrible for restaurants, but excellent for diners, as well as shareholders.

I think grub and doorash would try and consolidate power by acquiring smaller niche participants.

The key point to investing in this type of stock is, there is limited downside (max loss equals amount invested), but multi-baggar upside potential.

-huddaman

1 Like

I looked at this previously but rejected it out of hand when I saw GrubHub’s low rating in Yelp reviews. I just checked again, and with more than 1,500 reviews it has a one star rating, which is as low as it goes. I don’t think I have ever seen such a sizable business with such low ratings on Yelp before. Can anyone reconcile this with its success to date?

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Hi Matt,

Grub appears to be down close to 50% from its high of around $150 to $76

Thanks for the help Matt, my mistake. I also see that their competition waitr is going to ipo.

Andy

1 Like

Yeah, I wonder how a company with 1-Star yelp reviews can generate gross food sales of $1.2 Billion in single quarter with millions of active users?

Actually this shows how unreliable yelp reviews can be.

Just FYI, there were 1500 yelp reviews. Whereas they sell 467,000 meals per day ( daily active grubs). It seems like a very small subset of unhappy people have posted on yelp.

But yes, if this was reliable it would be troublesome and no way grub would be able to grow revenue at the rate posted because for every new customer gained, they would be losing two.

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Declining margins, extremely competitive market with little to no moat, growing mostly by acquisition. They are paying more and more for growth, this is a sign of a company that is in a competitive market. I can see why they appear to be cheap. Why force an investment when there are plenty of companies in our little universe that have their market to themselves, AYX, ZS,ABMD, VCEL, okta and MDB sorta, etc etc. Naturally I could be wrong but this one isn’t for me.

all the best,
Ethan

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Ethan,

No MOAT? Have you heard of the network effect? GRUB has the diners on their site, and the restaurants. New entrants can slowly signup restaurants, but will still need diner traffic. It is very difficult to establish yourself in a market where there is already another company with critical mass.

On the other hand, many of the companies you mention can be replaced with better technology offerings. OKTA is an outstanding product, but has many competitors. Centrify is one example. I have used it in my previous and current company. But centrify and OKTA cannot rest on their laurels.

Look into WKDAY if you want to see a company with moat.

Also, GRUB - I am not sure they are paying more and more for acquisitions. Apart from Seamless in 2013 and EAT24 recently, the other acquisitions were quite small. Prove me wrong with numbers. Have you got the data to show how much they paid for recent acquisitions when you make such outlandish claims? If so, post the numbers.

MDB is not the only nosql db company in the world. Same with ZScaler. Hardly the only internet or cloud security company in the world.

Moreover, most of the companies you mention make no money. Forget declining margin, they have negative profit margins.

GRUB had Net margin of 8% in Q3 a year ago and 9.2% in current year Q3. To me that is progress. Sure there were double digit net margin quarters in the past, but nobody here has studied why there was a double digit margin. This isn’t a fully mature business yet. 52% revenue growth requires investing into marketing, R&D, etc. Regarding acquisitions, I am all for them buying small players to consolidate their moat. Instead of spending on marketing to enter a new market, if they swallow the competitor whole, that is far better strategy.

ZS for example had 63 Million in revenue last quarter, and 7.5 million net loss. I.e net margin of -11.90%. They Revenue grew slightly faster than GRUB at 57.5% (vs 52% of profitable growth for GRUB), but at the cost of losing 7.5 million. Their growth is coming at an expensive price tag.

GRUB reported $247 million revenue, 9.2% net profit margin sells for $7 billion market cap.
ZS reported $63 million revenue, -11.9% net profit margin, sells for $5 billion market cap.

ZS has to yet prove that their growth in revenue will eventually result in profits. GRUB on the other hand is already growing profitably.

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Hi JKB,
How are you coming up with Gross Margin’s? I don’t think the company breaks that out. The only way to look at this company is by Revenue, ebitmargin, opmargin, and netmargin. I think it is interesting how this company is rolling up other companies to add onto themselves. Also as far as yelp goes, if you read some of the review, people will say, I love grubhub but this time they failed to deliver my food, or the guy arrived late because he was on a bike. One even said the first two times they delivered they were great but this time they were horrible. So I am assuming that the people didn’t write a review when they were great but did when they were horrible. If you look at their Glassdoor reviews they are at 3.5 stars and it has some interesting stats under company statistics.

https://www.glassdoor.com/Overview/Working-at-Grubhub-EI_IE4…

Andy
No position in Grub

Huddaman,

Thanks for bringing this. We have looked at it before, but there’s never a problem with taking another look at growing companies. Ray (imuafool) brought this to the board a couple times, and I looked into it each time. I think the main thing that scared me off earlier this year was the growing competition from UberEats when I saw this article: https://blog.secondmeasure.com/2018/04/13/takeout-takeover-u…

But this more recent article shows a surge for DoorDash…and more concerning, that Grubhub’s market share is actually declining: https://medium.com/edison-discovers/in-us-food-delivery-wars…

It’s reasonable to be concerned that competition is making it harder for Grubhub to charge as much. This could cause the gross margin issue JKB identified. I believe he is calculating Gross Profit by subtracting “Operations and Support” from Revenue. It does seem like gross margin has fallen quite a bit, and this could definitely be depressing GRUB shares.

Huddaman, do you have any thoughts on this? You seem to have a good handle on how Grubhub makes money. Have there been any changes in their take rate or are they just beefing up their infrastructure? Either way 55% GM seems very low.

If Ray (imuafool) is out there, I’d love to get his current take as well.

Thanks again,
Bear

7 Likes

Huddaman,

You bring up some great points. I probably won’t dig too far into this one just due to lack of time and no real interest in the investment. Having said that, GRUB could well be a good investment, don’t take my lack of interest as a condemnation in the idea. One can only swing at so many pitches. I responded in line below.

No MOAT? Have you heard of the network effect? GRUB has the diners on their site, and the restaurants. New entrants can slowly signup restaurants, but will still need diner traffic.

The restaurants around us (sf bay area) all have multiple ipads with each services app running on the device to manage the orders from the 3-5 different delivery services they use. This is just an anecdote so don’t put too much weight in it but I was discussing the situation with the owner of a very popular fast dining place near by. He said they have one person who’s main job it is too coordinate all the different delivery services. As for as the diner side, when we talk about getting something delivered we poll the group who has a coupon/promotion for one of the myriad of delivery services around here. We have zero, absolutely zero customer loyalty. The delivery market is definitely growing rapidly but the competition is fierce. These are well funded companies that are willing to throw money at the problem. From Matt’s post, “Uber Eats 28%, Doordash 18%, Postmates 12% and Caviar 3.5%”

On the other hand, many of the companies you mention can be replaced with better technology offerings. OKTA is an outstanding product, but has many competitors. Centrify is one example. I have used it in my previous and current company. But centrify and OKTA cannot rest on their laurels.

I don’t disagree but the switching cost for a company to switch away from their database or single sign on/security solution is much higher than it is for me as a diner to install a new app on my phone and enter my credit card information.

Also, GRUB - I am not sure they are paying more and more for acquisitions. Apart from Seamless in 2013 and EAT24 recently, the other acquisitions were quite small. Prove me wrong with numbers. Have you got the data to show how much they paid for recent acquisitions when you make such outlandish claims? If so, post the numbers.

I didn’t claim that grub was paying more for their acquisitions but I could see how you could get that from what I said, “They are paying more and more for growth, this is a sign of a company that is in a competitive market. “ I was saying the company is spending more and more to get their revenue growth, not that each acquisition was more expensive. From their CC, “Operations and support expenses were $112 million, a 71% increase year-over-year compared to $65 million in the third quarter of 2017. This was driven by increased delivery orders, the underlying growth of our order volume, and the inclusion of Eat24 orders. As we’ve explained in the past, we expect this line item to grow at a faster percentage rate than revenue, given the mix shift towards more Grubhub delivered orders” et. The rest of their expenses grew 40-51%, roughly in line with their revenue growth.

MDB is not the only nosql db company in the world. Same with ZScaler. Hardly the only internet or cloud security company in the world.

Moreover, most of the companies you mention make no money. Forget declining margin, they have negative profit margins.

I think most of us are more interested in the trend than the absolute number. Take a company who has declining margins vs a company with improving margins and i’m generally more interested in the improving margins. The companies I mentioned have rapidly improving margins.

GRUB had Net margin of 8% in Q3 a year ago and 9.2% in current year Q3. To me that is progress. Sure there were double digit net margin quarters in the past, but nobody here has studied why there was a double digit margin. This isn’t a fully mature business yet. 52% revenue growth requires investing into marketing, R&D, etc. Regarding acquisitions, I am all for them buying small players to consolidate their moat. Instead of spending on marketing to enter a new market, if they swallow the competitor whole, that is far better strategy.

Sure, but they are juicing their return with debt, They have 290 million of debt up from 170 million last year. Don’t get me wrong, at this point they have plenty of cash and cash like assets to service that debt, as well as cash flow. However delivery as well a restaurants are definitely a discretionary purchase . I get nervous about debt in general especially in a business that i think is going to get smacked down with the next slow down.

ZS for example had 63 Million in revenue last quarter, and 7.5 million net loss. I.e net margin of -11.90%. They Revenue grew slightly faster than GRUB at 57.5% (vs 52% of profitable growth for GRUB), but at the cost of losing 7.5 million. Their growth is coming at an expensive price tag.

GRUB reported $247 million revenue, 9.2% net profit margin sells for $7 billion market cap.
ZS reported $63 million revenue, -11.9% net profit margin, sells for $5 billion market cap.

ZS has to yet prove that their growth in revenue will eventually result in profits. GRUB on the other hand is already growing profitably.

I notice you are using GAAP numbers for your net profit margin, ZS is profitable from a non-gaap standpoint. We have had that argument on this board ad nauseam so I just want to mention that, not rehash the argument. Either way a little trend is helpful here. Grubs was 8% now 9.2% as you said an improvement of 1.2%, ZS is now -11.9% and was -28.6% an improvement of 16.7% Everything about ZS is expensive but everything is improving really really quickly and they have no debt. No doubt ZS has risks, just ones I like better than GRUB. I will say, from my quick perusal of their CC and earnings report, GRUB knows their business. Best of luck with your investment!

Best,
Ethan

5 Likes

I think most of us are more interested in the trend than the absolute number. Take a company who has declining margins vs a company with improving margins and i’m generally more interested in the improving margins. The companies I mentioned have rapidly improving margins.

Ethan,

thanks for posting your thoughts.

I just want to point out, that GRUB’s margins are not declining. The gross margins numbers posted were bogus. These guys dont have gross margins.

Also, I posted GAAP net margin of 9.2%. They also have non-gaap net margins which are much higher. I understand that some of the other companies appeal better to you inspite of the fact that they are losing money on GAAP and only able to make money when they dilute existing shareholder ownership.

In the latest quarter, they had gross food sales of $1.2 billion, and net revenue of $247 million. Thats 20.58% of gross food sales in Q3-2018.

Q3-2017, gross food sales was $867 million, and net revenue was $163.1 million, i.e 18.81%. So, their take rate has increased, inspite of competition from DoorDash, UberEats, etc.

BKNG, EXPE, etc also compete with each other, and one could make the same arguments, that there is zero customer loyalty. In reality, customers don’t like to jump from one website to another. I usually stick to seamless.com, and don’t bother looking for one time promotions on other sites. Having said that, there should be different type of customers. Some stickier than others.

One major risk is, the take rate @20% is too high. A new kind of company could try and disrupt that by offering say 5% take rate. That would probe disastrous for doordash, grubhub etc. However, even then, it wont be easy for them to create the network.

Good luck with other stocks. Those kind of returns remind me of 1999, when CSCO with $1 billion in profits was trading at $400 billion market cap. (rough numbers from memory)

1 Like