Citigroup Raises Price Target For Buy-Rated GrubHub

After GrubHub Inc’s GRUB big earnings beat yesterday, Citigroup released a report today updating their outlook for the company. The report included a price target hike for GrubHub’s stock.
Big numbers
GrubHub beat consensus earnings and revenue estimates for 4Q14, and the company's guidance for 1Q15 came in ahead of the midpoint of the consensus range. Citi attributes the Q4 beat mostly to stronger-than-expected Average Orders/Diner and better cash management. GrubHub also announced that they acquired two delivery service providers, which will ultimately allow for lower-cost deliveries in the future.
Digging deeper
GrubHub grew Q4 revenue by 50 percent year-over-year (y/y), and the company’s total revenue for the quarter of $73.3 million beat Citi’s estimate of $70.4 million by four percent.
Take rate for the quarter was 14.4 percent, up 118 basis points y/y, but down slightly from Q3 due to slow growth in less developed markets.
Active Diner count was up 47 percent y/y to 5.0 million, but average orders per diner fell by 10 percent y/y. Citi also attributes this y/y fall to the company’s expansion to newer markets.
EBITDA margin of 34.1 came in well above Citi’s projections.
Finally, free cash flow of $24.1 million represented a 42 percent y/y increase.
Outlook
Citi analysts revised their outlook for GrubHub based on Q4 results. Analysts boosted their revenue estimates for 1Q15 from $83.2 million to $84.9 million, but maintained their EBITDA forecast at $25.6 million for the quarter.
Citigroup analyst explained that they, “continue to recommend shares in light of the company’s large TAM, favorable competitive dynamics, margin profile, and, of course, growth.” Citi reiterated its Buy rating for GrubHub and raised its price target for the stock to $48.