GrubHub Integrates Venmo As Payment Option; Stephens Says Peers Are At Competitive Disadvantage

GrubHub Inc GRUB's first-mover advantage in food delivery positions the company to capitalize on rapid growth in the sector, according to Stephens. 

Its announcement Tuesday that Paypal Holdings Inc PYPL's Venmo is being integrated into the platform makes it easier than ever before to buy full-service restaurant delivery and split the bill with friends. 

The Analyst

Stephens analyst Will Slabaugh initiated coverage of GrubHub with an Overweight and $120 price target.

The Thesis

With nearly three times the market share of its closest competitor DoorDash and almost four times the market share of Uber Eats, Slabaugh said he views GrubHub as the clear leader in the domestic online ordering and delivery space and does not forecast a slowdown in growth anytime soon. 

GrubHub’s scale will result in continued 20-25-percent organic growth without accounting for the possibility of future partnerships, the analyst said.  

“Given GRUB’s first-mover advantage and aggressive acquisition strategy, we view the majority of its peers at competitive disadvantages that could result in question marks around the true opportunity of many of their business models,” the analyst said.

Even with a premium valuation, GrubHub's total addressable market is highly attractive and supports near- and long-term investments in the business, Slabaugh said, adding that he views the company as a desirable acquisition target over time. 

Few growth stories exist in full-service dining, but to-go and delivery have been increasingly important drivers of same-store sales growth in recent years, Slabaugh said. Darden Restaurants, Inc. DRI-owned Olive Garden was an early mover in to-go, leading to consistent double-digit growth for several years, the analyst said. To-go now comprises 13 percent of Olive Garden's business, the analyst said.  

With the knowledge of how important delivery and to-go service is becoming to restaurants that did not traditionally offer the option, partnerships are becoming vital to both parties, Slabaugh said.

GrubHub’s recent partnership with YUM! Brands, Inc. YUM is a key catalyst moving forward, he said, with GrubHub providing exclusive and dedicated support for KFC and Taco Bell’s online delivery channels. YUM agreed to purchase $200 million in GrubHub shares, to be used to accelerate the expansion of the company’s delivery network and improve the ordering experience.

“We view this partnership as a game changer, due to its introduction of incremental and broad-reaching scale into the GRUB system, the upcoming stream of revenue and profits that we expect to build as franchisees buy into the GRUB model and added legitimacy for GRUB’s platform,” Slabaugh said. 

Price Action

GrubHub shares were up over 5 percent following the upgrade, at last check trading at $103.44. 

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Photo courtesy of GrubHub.