This is not analysis of GrubHub (GRUB), because the company is an IPO. I need to hear management after at least their first earnings report before I really dig into a stock. This is just something to put on the watchlist for the future.
GrubHub is something I started using a little later than my friends in the San Francisco area. Now I use it all the time. I was recently in the Portland metro area and checked to see if there were a lot of options on GrubHub, and there turned out to be less than my current area in the New York City area. That is not a criticism, because it will take some time for GrubHub to sweep the nation. The deep penetration in San Francisco is not surprising.
The General Idea
When I feel like a lot of people are using something it is worth mentioning. However, when I see something that is a little raw entering the stock market I take notice. I thought the same thing of Yelp (YELP) when it first came out. The stock is doing better than when it debut, but early on I felt that while everyone used it making money was a bit more tricky. Sponsored links work, Google (GOOG) proves that, but I felt that Yelp did not have quite the scale. Being a review site, having crappy restaurants sponsored was not going to bring in a lot of money if it was click based. If it was flat rate for position, it would be short-lived as restaurants with poor ratings wouldn’t see a return on their investment.
Still it was a site that everyone was using. Facebook (FB) is a similar example. You cannot ignore that kind of clout. GrubHub does not rise to the same level of traffic as Yelp, let alone Facebook, but it does not attract idle traffic. Most people are looking for something to eat, and if they find it they will likely order something. I’m sure the traffic to GrubHub converts directly into delivery orders far more than Facebook visits convert to clicks on ads, as a percentage.
What I am really hoping for is a poor first earnings show. That should bring the share price down below the IPO price. Also, you might give it 2 earnings reports for the lock on employee options to vanish. The point is to invest when the IPO turns, because GrubHub strikes me as a good company but IPOs are terrible. Now I say GrubHub is a good company, because I feel that I use it a lot and others must too. We have to wait for earnings to really decide. I want numbers and management’s perspective.
One thing warrants mentioning. GrubHub’s success depends on restaurants doing pick up and delivery through it. These phone call only places have got to go. I do not choose to call places that do not have delivery access through GrubHub. So that is one reason for places to join the GrubHub network, or its competition. What do you do with websites that let you order directly from their website? There are not many, and GrubHub really lets you get delivery from places that do not maintain online ordering systems with payment processing. My point is that GrubHub will need to add more restaurants to its list, and it needs to offer them something. Access to way more customers is possible, but Yelp does something similar. GrubHub is all about delivery and to a lesser extent pickup so GrubHub happily integrates with Yelp. GrubHub just needs to bring restaurants in. The best way is for it is to bring customer’s in. The barrier to entry is low, so GrubHub has to offer restaurants the best platform. Customers are fickle. I can jump from GrubHub to Eat24 quickly.
Conclusion
Not all of my articles need to be the dead sexy analysis that I hope to be known for one day. This one is just one to watch. Trust the young people, because they signal what the next big thing is.
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