GrubHub's Hunger For Partnerships Will Deliver Growth

GrubHub Inc GRUB reported solid second-quarter earnings on Thursday, with EPS in-line with the Street’s estimates and sales coming in slightly ahead.

The stock jumped on Friday’s open, trading up over 8 percent to the $51-53 range.

The report earned GrubHub a reiterated Buy rating from Canaccord Genuity analyst Michael Graham, with a price target raised from $47 to $50.

The company added 426,000 diners in Q2, beating analyst estimates by about 37,000. At the same time though, order frequency daw its largest year-over-year decline in five quarters.

Graham attributed the pressure to faster diner adds, lapping high engagement quarters from last year and ongoing faster growth in small markets.

Related Link: GrubHub Shares Rally Following Cowen Upgrade

New Partnerships Will Deliver Growth

Moving forward, growth is expected to be driven by synergies from Eat24, a competitor GrubHub recently acquired for about half of its own multiple of gross food sales.

Eat24 was bought from Yelp Inc YELP, which as part of the deal will now work closely with GrubHub to direct customers to the latter’s platform.

Yelp rocketed over 28 percent higher on Friday’s open following the news.

GrubHub and Eat24 have approximately 20,000 restaurants in common, bringing the total unique restaurants to around 75,000. Management believes the companies’ diner bases don't overlap much though.

Graham also highlighted a recently announced partnership with Groupon Inc GRPN, which “should drive significant incremental volume.”

The timing of that deal is subject to meeting regulatory requirements, but the analyst expects integration to happen within two quarters after the deal closes.

“While the engagement pressure may cause some consternation after an impressive period for the stock, we view these results and strategic moves as very consistent with our positive outlook,” said Graham.

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Image: torbakhopper, Flickr