GrubHub And Groupon: Possible Takeover Targets? - Analyst Blog

Following the acquisition of OpenTable OPEN by online travel booking company Priceline.com PCLN, its peers GrubHub GRUB and Groupon GRPN saw their share prices rise on chances of similar takeovers.

In fact, the M&A landscape looks bright this year with strong corporate balance sheets, favorable credit markets, low interest rates and strength in the stock market.

GrubHub's shares went up nearly 7% on Jun 13 and 2% in after-hours trading. The provider of online and mobile platforms for restaurant pick-up and delivery orders targets independent restaurants, which account for 61.0% of all U.S. restaurants. Per the company, Americans spent approximately $67.0 billion on takeouts at these eateries and the amount is expected to increase significantly driven by higher mobile engagement. Per S-1 filings, the company generated revenues of $137.1 million in 2013, which jumped 67.0% from 2012.

Moreover, GrubHub enjoys first-mover advantage in the online and mobile delivery service market. The company's strong base of restaurant partners helps it to counter intensifying competition.

Another probable takeover target, Groupon, saw its share price rise 3.9% to close at $6.24 on Jun 13. The company connects consumers to merchants across the world by offering goods and services at a discount. In the last reported quarter, Groupon reported a positive earnings surprise of 42.9%, with revenues increasing 26.0% year over year to $757.6 million.

Groupon is particularly strong in the mobile segment, deriving 50% of North America reservations (55% of total reservations) in the last quarter from mobile devices. The company's policy of launching new products regularly and the growing popularity are the factors driving its growth.

We believe that innovation within a fast-growing segment,  increased use of mobile devices for local purchases and the possibility of scaling up to better serve international markets make Groupon and GrubHub interesting acquisition targets at present.

Currently, Priceline, GrubHub, Groupon and OpenTable have a Zacks Rank #3 (Hold).