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Grubhub (GRUB) Q2 Earnings Top Estimates on Order Growth

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Grubhub Inc. reported second-quarter 2018 earnings of 50 cents per share, which beat the Zacks Consensus Estimate of 41 cents. The figure soared 92.3% on a year-over-year basis driven by robust increase in orders and revenues as well as improved operational efficiency.

Revenues climbed 51% year over year to $239.7 million and comfortably beat the Zacks Consensus Estimate of $233 million. Excluding Eat24, which was acquired from Yelp (YELP - Free Report) in October 2017, revenues increased 34%.

Gross food sales surged 38.7% year over year to $1.22 billion with average order size up 3% during the quarter. Excluding the acquisition of Eat24, gross food sales increased almost 22%.

Net revenues as a percentage of gross food sales were 19.6%, up 160 basis points (bps) on a year-over-year basis and 100 bps sequentially. The increase was primarily due to favorable mix shift toward Grubhub Delivery, including Eat24 and Yelp diners, and restaurants opting to pay for more impressions on the platform.

As of Jun 30, 2018, active diners were 15.6 million, which surged around 70% from the year-ago period. In the second quarter, the company added 0.5 million of active diners. Management is particularly optimistic about higher number of new diners during the quarter, in spite of the quarter being a seasonally weaker one due to summer holidays and lower spending on advertisements. The impressive addition of new diners was primarily due to the company’s efficient delivery network and new quality-focused restaurant partners.

Daily Average Grubs (DAGs) were 423,200, which increased 35% from the year-ago quarter. The figure declined around 3% sequentially. Nevertheless, organic DAGs grew 19% year over year and also was the third consecutive quarter of organic DAG growth. Accelerated end market growth aided rise in DAG.

The company has launched delivery services in 70 new markets during the year-to-date period. It is hopeful about the markets gaining rapid traction. Grubhub already supports over 10,000 locations of its restaurant partners and looks to tap the remaining growth opportunity in the market.

Operating Details

In second-quarter 2018, total costs & expenses as a percentage of revenues decreased 60 basis points (bps) on a year-over-year basis to 85.7% in the reported quarter.

Sales & marketing, technology, and general & administrative expenses decreased 260 bps, 110 bps and 180 bps, respectively. These were offset by 310 bps and 170 bps increase in operations & support and depreciation & amortization expenses, respectively.

Adjusted EBITDA increased 61% to reach $67.4 million in the quarter. Adjusted EBITDA per order was $1.75, up 19% from the year-ago quarter.

Growing restaurant network and delivery capacity coupled with improved operational efficiency resulted in the improved profitability.

GrubHub Inc. Price, Consensus and EPS Surprise

GrubHub Inc. Price, Consensus and EPS Surprise | GrubHub Inc. Quote

Recent Acquisition

Grubhub also recently announced the acquisition of LevelUp, which manages digital ordering and payment solutions for national and regional restaurants, for $390 million in cash.

LevelUp has a customer base comprising the likes of Roti, Pret a Manger, Zaxby's and Just Salad among others and is expected to provide Grubhub with additional exposure and expertise to grab new diners.

Additionally, the buyout will aid Grubhub in “integration with restaurants’ point-of-sale systems”, thereby making the delivery process easier..

The acquisition is subject to customary closing conditions and the guidance provided by the company does not include the impact from the target’s contribution.

Guidance

For third-quarter 2018, Grubhub forecasts revenues between $232 million and $240 million. DAGs are expected to decline sequentially. Adjusted EBITDA is anticipated to be within $58-$64 million.

For 2018, Grubhub forecasts revenues between $966 million and $983 million (up from the previous guidance of $930-$965 million). Adjusted EBITDA is expected to be within $256-$270 million (up from the previous guidance of $242-$262 million).

By the end of the year, the company expects to cover two-thirds of KFC and Yum! Brands’ (YUM - Free Report) Taco Bell's market presence.

However, the company announced that in order to keep a check on the costs, it has decided to consolidate Eat24 brand by the end of this year, but only after the majority of the customers are transitioned.

Zacks Rank & Stocks to Consider

Currently, Grubhub carries a Zacks Rank #2 (Buy).

GoDaddy Inc. (GDDY - Free Report) is another stock in the same sector with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for GoDaddy is 2.9%.

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