Online platform for restaurant deliveries, Grubhub Inc. (GRUB) recently announced that it has made a confidential filing with the Securities and Exchange Commission (SEC) related to a proposed follow-on public offering of its common stock .
Shares of Grubhub declined 8.42% ($3.60) on Aug 25, 2014 following the news.
The company plans to offer 10 million shares in the secondary offering, including 1.25 million new shares from Grubhub.
The remnant 8.78 million shares will be sold by insiders, who are otherwise not allowed to sell shares due to the locking period that restricts investors from selling immediately after an IPO. The locking period, in this case, has been waived by Citigroup (C) and Morgan Stanley (MS) who are the prime underwriters for the IPO.
Filing for an Initial Public Offering (IPO) with the Securities and Exchange Commission had been made by VMware in February, 2014 and it was formally done on Apr 4, 2014. As part of the IPO, 7.4 million shares were offered to the general public at a price of $26 per share. The company made $200 million from its IPO, approximately $7 million higher than its expectations.
Initial public offerings as well as secondary offerings open up an option to insiders to relinquish their shares in a particular company. We believe that a secondary offering in such a short span after an IPO has resulted in a panic among shareholders, leading to the decline in share price.
In the recently concluded second quarter of fiscal 2014, the company reported revenues of $60 million, which were up 47.6% on a year-over-year basis. Grubhub reported second quarter earnings of 3 cents per share which improved from breakeven reported in the year-ago quarter.
Grubhub primarily targets independent restaurants, which account for 61% of all U.S. dining places. Per the company, Americans spend approximately $67 billion on take-outs at these independent eateries, which is expected to increase rapidly. Moreover, we believe that increasing mobile engagement will drive the top line in fiscal 2014 and beyond.
However, intense competition from the likes of Opentable remains a major concern. Moreover, the recent patent-violation lawsuit filed against Grubhub by a San Diego-based company is a headwind for the company. Additionally, the entry of bigger names like Amazon.com (AMZN) intensifies competition in the market, which may hurt profitability.
Currently, Grubhub has a Zacks Rank # 2 (Buy).
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