A few weeks ago GrubHub Inc (NYSE:GRUB) started tanking after several reports suggested that the company could be a loser amid the “Amazon Effect” that is taking over the retail and food market dynamics in the US. But, GrubHub is making a strong comeback — see the video on its intentions below. The company remains the market leader with over 34% market share — a potentially great opportunity for GrubHub stock owners. UberEats has 20% market share while Amazon enjoys 11% share.
Earlier this month, Yelp announced that it was selling Eat24 food delivery service to GrubHub for $287.5 million in cash. The companies will also enter into a partnership, which Yelp will integrate online via ordering from GrubHub restaurants into its platform. It is important to note that Eat24 has a massive customer base and about 16% market share. Analysts think that GrubHub has made one of the best decisions by acquiring Eat24 . After the merger, GrubHub will have 75,000 unique restaurants about half of the market under its grasp.
Morgan Stanley recently upgraded GrubHub and gave bullish outlook for the stock. The firm likes GrubHub’s acquisitions of Eat24, Foodler and OrderUp. Morgan’s analyst Brian Nowak said in a report that the latest buyouts can extend GrubHub’s scale and size to almost four times its nearest competitor.
He also noted that the companies acquired by GrubHub are already generating high incremental EBITDA and have the ability to add a whopping $80 million to core 2018 EBITDA of GrubHub. The report also cited a survey which found that about 60% of the Eat24 users never used GrubHub.
After the merger, these users will get access to almost 35,000 new restaurants, which would result in an explosive growth and engagement. Based on all these factors, Morgan Stanley upped its price target to $59 from $43, and upgraded the rating to “Overweight” from “Equal Weight.”
GrubHub stock has a huge growth potential. Online food delivery services have a penetration rate of just 6%. Analysts believe that this penetration will cross 10% and will grow exponentially in the coming years.
In a latest program on CNBC, famous analyst Jim Cramer said that Yelp and GrubHub’s partnership is a “match made in heaven”. The analyst satated that the two companies combined could become undisputed leaders in the online food space
GrubHub shares are up over 46% since the start of 2017. The company recently reported an excellent quarter. Revenue of $159 million topped analysts’ estimate of $153 million. The company said that the number of active users on its platform and the value of the food sold surged 20% in the quarter year over year.
On August 3, KeyBanc Capital Markets upped their price target for GrubHub to $56, citing strong growth potential and partnerships with Groupon and Yelp.