Wall Street loves GrubHub. But should it?
Almost 70% of sell side analysts following GrubHub (GRUB) rate the stock a buy or overweight. Sure, shares of the $3 billion online pick-up and delivery service are up 15% in the past 6 months. But investors may be getting ahead of themselves.
Door-side pizza delivery from Domino’s (DPZ) is already a relative behemoth in the budding delivery space. And Panera Bread (PNRA) is just joining the fray. Meanwhile, upstart delivery disrupters like DoorDash and Postmates are attracting a lot of venture capital dollars. The space is getting rather crowded.
None of this bodes well for GrubHub, which has traditionally been an aggregator of orders but is now trying to get in on the action both organically and through acquisitions.
The 3 Simple Reasons GrubHub is a Sell
Below are three reasons why we think GrubHub is a short, from the video above, with notes and comments from Hedgeye Restaurants analyst Howard Penney:
- GrubHub’s Commission Model Is Unsustainable: “What you need to have a successful delivery business and growth over the long-term is, one, the customers, two, the brands and, three, logistics. Logistics is a small piece for them already but they don’t have the brands, so it comes back to this consumer company that’s aggregated independent restaurants and that’s what you’re left with.”
- Margin Projections Are Too High: “The thing you don’t want to see is the CEO basically selling as much stock as he can as fast as he can. GrubHub CEO Matt Maloney sold $25 million worth of stock in 2016 bringing his stake down to 37%. If that doesn’t speak volumes as to where this thing is going…”
- Competition Domestically/Crowded Opportunity Abroad: Brands are signing up to deliver via DoorDash and Postmates service but not so much with GrubHub. Meanwhile, Just Eat (a U.K. based company), Takeaway.com (based in Germany) and Delivery Hero (also German based) already cover most of Europe.
That’s pretty much the thesis in a nutshell. Sell GrubHub.
Click here to read to read more about why delivery may be “the most disruptive change in the restaurant industry in this generation.”
But also why it won’t benefit GrubHub.
