Grubhub, Baidu, Tesla Motors, Square and Jack in the Box highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – August 04, 2016 – Zacks Equity Research highlights Grubhub (GRUB) as the Bull of the Day and Baidu ( BIDU) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tesla Motors (TSLA), Square (SQ) and Jack in the Box ( JACK) .

Here is a synopsis of all five stocks:

Bull of the Day :

Grubhub (GRUB), the nation's leading online and mobile food ordering company dedicated to connecting hungry diners with local takeout restaurants, delivered the coveted "earnings trifecta" last week in their Q2 report on July 28.

The earnings trifecta is what we here at Zacks call top and bottom line beats, plus raised guidance. Grubhub reported Q2 EPS of $0.23 versus the $0.19 expected. Revenue also came in higher at $120 million versus expectations of $114 million. Improved engagement with customers and restaurants drove these higher operating metrics, more than offsetting seasonal weakness.

In addition, the company issued a raise in their fiscal year 2016 revenue guidance to $480-88 million versus $469 million expected. This guide is on the back of strong growth with active dinners up 24% year-over-year to 7.35 million.

How Does GRUB Make Money?

The company's online and mobile ordering platforms allow diners to search for and order directly from more than 44,000 takeout restaurants in over 1,000 U.S. cities and London. Every order tracked by Grubhub and is supported by the company's 24/7 customer service teams. Grubhub has offices in Chicago, New York and London.

Grubhub makes money on a combination of advertising from restaurants, commission or "take-rate" agreements on food sales, and deliveries.

Gross Food Sales were $733 million, a 29% year-over-year increase from $568 million in the second quarter of 2015. Daily Average Grubs were 271,100, a 23% year-over-year increase from 220,100 Daily Average Grubs in the second quarter of 2015.

Grubhub receives a "take-rate" of roughly 15.7% of food orders, comprising a base rate of 10% and a placement premium of 0-20%, depending on market density and positioning preferences. Take-rates are increased when restaurants call GrubHub and ask how to get more orders.

Strong Q2 results were fueled by a reacceleration of sequential net active diner adds (+26% organic, +70% including LA Bite) and a 70bps improvement in the take rate due to increased usage of the delivery network.

Credit card fees represent about 2% of gross-food sales, or 14% of total revenue.

The Shorts Got Their Lunch Eaten

My colleague Jeremy Mullin, who focuses on stocks worth selling short, recently wrote about GRUB in his article 4 Internet Stocks Crushing Earnings...

GrubHub has a market cap of $3.25 Billion and a Forward PE of 56. The company sports a Zacks Style Score of "A" in Momentum, but "F" in Value. Because of this high valuation the stock has been a favorite with short sellers, with 40% of the float holding short. The company's valuation is something investors have questioned in the past, but a recent earnings beat might force the shorts to cover.

The stock surged over 20% higher after the numbers. All-time highs are another 23% higher and if the momentum continue shorts will have to cover, taking the stock to April 2015 levels.

And what made GRUB a Zacks #1 Rank this week was the fundamental reaction from analysts. In the past few days, six of seven covering analysts raised their EPS estimates to push the 2016 consensus 15% higher from $0.59 to $0.69. For 2017, revisions have also gone up 15% from $0.76 to $0.89.

Bear of the Day:

Baidu (BIDU) reported Q2 earnings on July 28 and disappointed investors with their performance as well as with their guidance for the current quarter.

Baidu's 2Q16 organic revenue grew 16% year-over-year and organic adjusted EBITDA fell 19%, both lagging consensus by about 1%. Investors may recall that this weak performance follows a mid-June reduction in revenue guidance to reflect weakness in the Search business following a crack-down on medical search advertising.

On June 17, my colleague Tracey Ryniec wrote about the situation...

Revenue Guidance Cut

On June 13, Baidu surprised Wall Street by cutting its second quarter revenue guidance to a range of $2.807 billion to $2.823 billion from the prior guidance of $3.119 billion to $3.192 billion.

Healthcare providers have delayed advertising while they wait for clarity on recent regulatory actions.

Baidu itself has also taken steps to implement new measures requested by regulatory authorities, such as modifying paid search practices.

Healthcare accounts for about 20% of search revenue.

Back to a Zacks #5 Rank Strong Sell

When Tracey did her story on BIDU in June, the stock was trading around $165. It has only treaded water sideways since then. But as the downward estimate revisions roll in, that may put more pressure on shares.

Most analysts have been reducing 2016 and 2017 revenue projections by roughly 5% and 10% respectively on Search weakness and incremental tax issues, partially offset by stronger non-search revenue and reduced couponing.

In the last week, at least 2 analysts have knocked down EPS estimates resulting in the Zacks Consensus for 2016 dropping from $4.30 to $4.00, representing earnings "growth" of negative 73%. It was at $5.84 90 days ago, so you can see how much damage has been done here to the business outlook recently.

The 2017 EPS consensus estimate dropped from $6.75 to $6.28, signaling potential growth of 57% if the $4.00 number holds for this year. 90 days ago, next year's EPS projection was $8.19 so we are looking at a 23% slash to the forward profit picture this summer.

Management expects it will take 2 to 3 quarters to see a rebound.

What's the Problem at Baidu?

To sum up what's going on, analysts at Stifel Nicolaus describe the situation as "Ailing Cash Cow, Voracious Stars." Here's how they explain...

"Baidu's strategy is to use its Search business cash cow to fund the growth stars of Transaction Services and iQiyi. However the cash cow is ailing, and the stars are hungrier than every. We expect at least several quarters of tepid growth and weak profits at Baidu, and maintain a Hold rating on the shares."

Technically speaking, it looks like the stock is riding on a cliff at $160, just waiting to drop off. The next target would be the February lows near $140.

While I can't tell you if the risk/reward of shorting shares here at $160 is worth it for you, I can tell you unequivocally the stock is not a buy right now.

Analysts at Oppenheimer, in addition to lowering sales and profit estimates, lowered their 12-18 month price target from $196 to $188. Those numbers might be realistic if the company does turn the business around in the next few quarters.

But right now, listen to the Zacks Rank.

Additional content:

Tesla and Others Keep Q2 Earnings Popping

Q2 earnings season keeps the reports popping, mostly with favorable results from the bigger names Wednesday afternoon. Tesla Motors (TSLA) missed analyst expectations, but Square (SQ) and Jack in the Box ( JACK) put up big numbers.

Tesla posted a bigger loss per share than expected with -1.54 per share (accounting for stock-based compensation and other BNRI) on revenues of $1.56 billion over the past three months. Revenue growth is more than 25% year over year, although Tesla's bottom line is far below the year-ago levels. Tesla still says it is on pace to deliver 50K automobiles in the 2H 2016, which would meet the earlier guidance of 80K deliveries expected. Shares in late trading bid up 1.4%, but have since been on the wane.

Square Inc. impressed the Street with its Q2 report after the bell, with a loss per share of 8 cents (-$0.11 expected) and big revenue beat of $439 million besting the $407 million expected. The 21st century financial services firm posted hardware revenue growth of 209% in the quarter, and a backlog of merchants vying for Square's online payment services.

Jack in the Box also posted a big beat on both top and bottom lines. Earnings of $1.07 per share easily topped the 87 cents in the Zacks consensus, and revenue of $369 million was beyond the $366.7 million expected. Healthy margins helped by a favorable legal settlement in the quarter. Although the stock is now trading up 8% after hours, JACK did report lowered guidance for its fiscal Q4.

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