GRUB Stock Forecast: Grubhub Levels Up With New Acquisition

 

This article was written by Julia Masch, a Financial Analyst at I Know First.

 

GRUB Stock Forecast: GRUB Levels Up With New Acquisition

Why Grubhub Gained 16% In July

“Powerful brands, combined with our increasingly efficient delivery network and Grubhub’s own strong growing brand are driving more diners and more orders to our platform.”

-Grubhub CEO Matthew Maloney

(Source: Wikimedia Commons)

Since going public in March 2014, Grubhub (NYSE: GRUB) has steadily grown. More recently, the food delivery service company which controls nearly half of the market has grown 200% in the last year which culminated in a standout July 2018 which produced gains of 16%. The strong growth in July was the result of a strong earnings report in combination with a solid plan for the future of the company.

A Stellar Second Quarter

Grubhub announced the numbers for its Q2 2018 on July 25, 2018 which caused an immediate spike in GRUB. This was due to positive metrics on nearly all accounts. Revenue grew 51% YoY to $239.7 million and net income grew 104% YoY to $30.1 million of $0.33 per diluted share.

Quarterly Revenue and Earnings (Source: Yahoo Finance)

The success of the company was not only shown by its growth in value and revenue, but also by many meaningful business metrics.

Some highlights of Grubhub’s second quarter of the 2018 fiscal year include an increase in the number of active diners that use Grubhub from 9.2 million to 12.6 million, growth of 70% YoY. Additionally, the amount of Grubhub orders made daily, a metric the company refers to as Daily Average Grubs (DAGs), increased 35% YoY from 313,900 in Q2 2017 to 423,200 in Q2 2018. This led to growth in Gross Food Sales of 39% YoY to $1.2 billion. The fact that the company has surpassed the billion-dollar market in gross food sales shows its power in the food delivery market.

On top of the strong results for the completed quarter, Grubhub provided strong guidance for Q3 2018 and the rest of the fiscal year. For the next quarter, GRUB expects revenue similar to the strong second quarter between $232 million and $240 million. For the full year 2018, the company expects revenue reaching nearly a billion dollars in the range of $966 million to $983 million.


Leveling Up With New Acquisitions

Another strong selling point for Grubhub this past year has been a slew of strong acquisitions for the company. In the past Grubhub has primarily focused its acquisitions on smaller delivery companies such as MenuPages, Allmenus, DiningIn, Delivered Dish, LAbite, and Yelp’s Eat24 in order to increase its market share.

(Source: PCMag)

However, in a new move, the company most recently announced one of its biggest acquisitions of the payments specialist LevelUp. LevelUp is a Boston-based company that is one of the leaders in mobile diner engagement. Grubhub hopes the acquisition will help to integrate its system in many major restaurant chains. Some of LevelUp’s customers include large brands such as KFC, Taco Bell, Roti, Pret a Manger, Zaxby’s, and more. This will help Grubhub expand its domain and could lead to a doubled delivery market footprint by the end of the year.

Some of LevelUp’s Clients Include Yum Brands Who Own Rights to Taco Bell, Pizza Hut, and KFC (Source: SeekingAlpha)

On top of helping Grubhub expand its customer base to these major chains, LevelUp will allow GRUB to capitalize on customer loyalty by helping to implement new customer loyalty programs for Grubhub as a whole as well as specific chains. Additionally, LevelUp will help Grubhub optimize its point of sales system and help new restaurants looking to join Grubhub. Grubhub’s acquisition of LevelUp shows the company’s interest in keeping up with the newest technology and point of sales systems while also increasing its reach across the country.

Technical Analysis

Since July, GRUB has stayed above its 50 day simple moving average (SMA) shown in purple and 200 day SMA shown in light blue. Since releasing its Q2 earning report, the stock has skyrocketed and does not appear to be anywhere close to a bearish cross in the near future. This shows positive momentum for Grubhub.

(Source: Yahoo Finance)

Analyst Recommendations

The majority of analysts agree that Grubhub is a strong or regular buy. Of 25 analysts polled by Yahoo Finance, only one give Grubhub a sell rating. The remaining analysts have put a neutral hold rating on the food delivery company.

(Source: Yahoo Finance)

Current I Know First Bullish Forecast For GRUB 

On August 1, the I Know First machine learning algorithm gave GRUB a bullish signal in the short and long run. The strongest signal is over the one year time horizon at 263.14 with a predictability indicator of .72.

Conclusion

Grubhub showed strong results at the midpoint of the 2018 fiscal year and is expected to continue these solid numbers throughout the rest of the year. On top of that, the company is maintaining its dominant position in the food delivery market with its newest acquisition of LevelUp. This acquisition will allow the company to capitalize on customer loyalty, point of sales systems, and expand its reach even more across the country. On top of all of this, a technical analysis and the I Know First self-learning algorithm both show bullish momentum for Grubhub. For all of these reasons, Grubhub is a solid buy in the future.

 Past I Know First Success With Grubhub

On February 27, 2018, the I Know First algorithm produced a bullish signal for GRUB over a 14 day period as part of the Top 10 Stocks to Buy Package. The signal for Grubhub was 44.00 with a predictability indicator of .32. This positive forecast came to fruition as Grubhub gained 10.21% over the predicted time period.

Current I Know First subscribers received this bullish GRUB forecast on February 27, 2018.

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