Online and mobile food-delivery service provider, GrubHub Inc. (GRUB) reported second-quarter earnings of 3 cents per share, which missed the Zacks Consensus Estimate by a penny. However, earnings per share (EPS) were better than breakeven reported in the year-ago quarter.
Share price jumped 7.92% to close at $38.02 on Jun 28, reflecting strong revenue growth in the quarter.
Quarter Details
Revenues surged 47.6% year over year to $60.0 million. The year-over-year growth was driven by higher commission rates, which improved from 13.5% in the first quarter to 14.2% in the second.
As of Jun 30, 2014, active diners were 4.19 million, much higher than 2.78 million of the combined entity. Daily Average Grubs were 174,500 versus 130,100 reported in the year-ago quarter. Approximately 48.0% orders were through mobile in the second quarter compared with 39.0% in the year-ago quarter.
Gross food sales were $422.6 million compared with $306.7 million in the year-ago quarter.
Total costs & expenses as percentage of revenues increased 27.8% year over year to $51.2 million in the reported quarter. This was driven by 53.0% increase in sales & marketing expense, 36.1% in operations & support, 44.0% in technology and 119.3% in depreciation & amortization. These were partially offset by 27.7% year-over-year decline in general & administrative expense in the quarter.
Adjusted earnings before interest, tax, depreciation & amortization (EBITDA) were $16.9 million compared with $10.8 million reported in the year-ago quarter. Pre-tax income was $8.8 million compared with $0.6 million in the year-ago quarter.
Net Income was $2.7 million or 3 cents compared with $0.3 million or breakeven in the year-ago quarter. As of Jun 30, 2014, cash & cash equivalents were $207.1 million.
Outlook
GrubHub forecasts revenues to be in the range of $55.5 to $57.5 million. Adjusted EBITDA is expected to be within $13.0 to $15.0 million.
Our Take
We believe that GrubHub’s growing popularity will attract large technology companies such as Google (GOOGL), eBay (EBAY) and Amazon.com (AMZN), who are planning to venture into the fast growing local services market. We believe that it is only a matter of time before this market will see further consolidation and GrubHub can be the next target.
Nevertheless, GrubHub’s strong mobile growth and increasing commission rate are key positives. However, intensifying competition will be a major headwind going forward.
Currently, GrubHub has a Zacks Rank #2 (Buy).
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