Grubhub Inc. (GRUB - Free Report) announced that it has entered into a partnership with America’s first hamburger restaurant chain, White Castle that will enable delivery across the country where both the services are available.
Currently, Grubhub is available in over 75 White Castle locations and the company plans to add 45 more locations this month.
The company is positive about the new partnership. Per chief operating officer, Stan Chia, "Our orders show that sliders are clearly on the rise, and we're thrilled to deliver more of what our nearly 10 million diners crave."
Notably, shares of GrubHub have gained 79% in the past year, significantly outperforming the industry’s 43.3% rally.
Partnership to Aid Growth
GrubHub’s constant efforts to enhance food ordering experience through inventive restaurant technology, user-friendly platforms and an enhanced delivery system are helping it to reach out to new customers.
Grubhub’s expansion outside the Tier 1 market is a positive. The company’s restaurant network has expanded 60% in the last 12 months (as of the end of third-quarter 2017), with significant growth coming from the Tier 2 and Tier 3 markets. Grubhub’s delivery is available in around 80 markets in more than 800 cities.
In the last reported quarter, Active Diners increased 28% year over year to 9.81 million. Management stated that this was the highest rate of organic diner growth in the last 1.5 years.
Moreover, Daily Average Grubs (DAGs) improved 14% from the year-ago quarter to 304,500. Further, gross food sales were $867 million, up 18% year over year.
We believe that Grubhub’s partnerships with the likes of White Castle, Groupon, Yelp (YELP - Free Report) and The Cheesecake Factory will help it to expand its user base further.
Management stated that Yelp’s strong consumer awareness, diner traffic and high intent to order delivery provides a successful channel for Eat24. The company is currently in the process of adding its 30K restaurants to the Yelp platform.
Moreover, solid relationships with existing chains like Red Robin Gourmet Burgers, BJ's and QDOBA are significant growth drivers.
Although the company’s partnership with Facebook (FB - Free Report) is still in early stages and management doesn't have much expectation for the near term. We believe that the social network’s staggering user base (monthly active users of 2.07 billion) presents significant growth opportunity for Grubhub in the long haul.
Zacks Rank and a Key Pick
Grubhub carries a Zacks Rank #2 (Buy).
A better-ranked stock in the broader technology sector is NetApp Inc. (NTAP - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for NetApp is projected to be 11.3%.
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