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Analyst Blog

Initial Public Offerings (IPO) continues to enjoy the favors of the market. The latest one being GrubHub Inc. (GRUB - Snapshot Report), whose shares surged 30.8% ($8.00) to close at $34.00 on Apr 4, 2014. The online food-delivery service raised $192.4 million on IPO, much higher than its initial expectations.

The sharp jump in GrubHub shares reflects growing appetite of investors for IPOs, particularly in technology and Internet-related sector. Except King Digital (KING - Snapshot Report), the developer of Candy Crush Saga (dropped 16.0% in its first trading day) most of the IPOs from the sector were successful to date in 2014.

GrubHub initially offered 7.0 million shares with a price range of $20.00 to $22.00 per share. However, the strong IPO market pushed the company to raise the price range to $23.00 to $25.00. GrubHub finally sold 7.4 million shares for $26.00. Citigroup (C - Analyst Report) and Morgan Stanley (MS - Analyst Report) were the lead underwriters.

GrubHub has approximately 28,800 restaurant partners across 600 cities, which pay a fee when users place food orders. The company noted that approximately 43.0% of orders came through mobile devices in 2013. As of Dec 31, 2013, GrubHub had 3.4 million active diners.

Per S-1 filings, GrubHub processed 135K revenue generating orders per day, while gross food sales were approximately $1.3 billion in 2013. The company generated revenues of $137.1 million, up 67.0% from 2012. The Aug 2013 merger with New-York based Seamless was a significant revenue contributor.

GrubHub targets independent restaurants, which account for 61.0% of all U.S. restaurants. Per the company, Americans spent approximately $67.0 billion on takeout at these independent eateries, which is expected to jump rapidly. We believe that   improving mobile engagement will boost GrubHub’s top-line growth in 2014.   

Moreover, GrubHub enjoys a first mover’s advantage in the online and mobile delivery service market. The company’s strong base of restaurant partners well positions it to face intensifying competition from the likes of OpenTable, going forward.

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