1. MII Stock Pitch Presentation: Grubhub (Long)
Yushan Li, Han Yuan Du, Tingyu Yang, Jianda Liu
21st Feb, 2017

2. Agenda Industry Analysis Business Model Thesis Points Misperceptions
Risks
Valuation
Investment Timeline

3. I. Industry Analysis

4. Industry Analysis
The quickly expanding food delivery industry is experiencing a transitioning period.
Estimated average growth rate of 20% per year till 2020
Traditional food delivery dominating ~65% of the market
Growing penetration of online delivery service
--Expected to reach 65% in five years
Constant new entries due to low capital/technology requirement
Sticky platform feature
The key to success in the online delivery service industry is to attract most customers in the shortest time.

5. II. business model

6. Business Model
Grubhub connects customers and restaurants to provide values for boths sides of the network.
Major revenue sources: per-order commission fee and delivery service fee
Target: independent local restaurants
--a network of over 40,000 local restaurants in over 1000 cities
Values for restaurants:
--more orders & higher efficiency
Values for customers:
--accuracy, convenience, and customization
Multiple channels & Services:
--Websites (Grubhub, Seamless)
--Mobile Apps

7. III. Thesis points

8. Thesis Point 1
Grubhub’s dominating position in the quickly expanding and promising market helps it outlast the competition from new entries.

9. Thesis Point 2
Due to its specialization in providing online delivery service, Grubhub has over 90% of returning customers and charges restaurants a lower than average commission fee.

10. Thesis Point 2
Dataset Insights : Vast Majority of the customers purchase from GrubHub 2-4 times a month.

11. Thesis Point 3
Grubhub’s steady cash flow points out the company’s ability to maintain profitability even in face of fierce competition.

12. Thesis Point 4
Strategic and synergistic acquisitions to strengthen its market leading position.

13. IV. MisPerceptions

14. Misconception 1 Only in 19 big cities Only for prime members
Grubhub’s current leader position is shaky as bigger and better financed competitors such Uber and Amazon has recently entered this industry.
Why this is a misconception:
Only in 19 big cities
Only for prime members
Value-add service to attract and maintain Prime memberships
Different goals from Grubhub
Only in big cities
Dissatisfaction among drivers for low payment (3-4 dollars per trip)
No tipping is encouraged
Hard to get drivers in small towns and cities
Doesn’t has its own delivery system
losing the market of restaurants without their own delivery men

15. Rising costs in the short term, benefiting in the long run
Misconception 2
Grubhub’s margins will not have a chance to grow due to the fierce competition in the industry
Why this is a misconception:
Strategies to grow:
Acquire more users
successful acquisitions
potential to merge acquired brands efficiently, thus increasing brand awareness
Lower delivery cost
starts its own delivery service and cut down the middleman by making partnerships with drivers
scooped over 30 to 40 engineers from “Zoomer”, increasing the efficiency of delivery network
Rising costs in the short term, benefiting in the long run

16. V. Risks

17. Risks Retaining existing restaurant partners and acquiring new ones
Key risks to our thesis points
Retaining existing restaurant partners and acquiring new ones
Slowing growth in Revenue and Active Diners
Intense competition, from both new and existing players
Underperforming acquisitions

18. VI. Valuation

19. Valuation DCF Results Current Share Price: $37.95 Target Price: $51.14
Upside: 34.8%
Key Assumptions: CAGR of revenue ＝ 30%, CAGR of EBITDA ＝ 32.5%

20. VII. Investment timeline

21. Investment Timeline Important dates:
Confident of GrubHub’s growth in 2017, but the future remains uncertain.
We aim to exit from our position in GrubHub within a year, or when our target share price is achieved.
Important dates:
Early May 2017: Release of GrubHub’s 2017 first quarterly report.
Late July 2017: Release of GrubHub’s 2017 second quarterly report.
Late October 2017: Release of GrubHub’s 2017 third quarterly report.
Early February 2018: Release of GrubHub’s 2017 fourth quarterly report and 2017 annual report