Investors show appetite for online takeaway services

<p>Two online takeaway services, Just Eat and GrubHub, made their market debut this week and both have drawn lots of interest from investors. Now, the […]</p>

Two online takeaway services, Just Eat and GrubHub, made their market debut this week and both have drawn lots of interest from investors.

Now, the sentiment here is that offering products and services via good technology doesn’t necessarily a technology company make.

Nonetheless, UK-based Just Eat and US-based GrubHub are being categorised as technology players, and equally sport the arguably frothy valuations currently being enjoyed by some technology companies.

Yesterday (3rd April) Just Eat, which priced its offering at 260p per share (the top of its range), opened some 9.6% up – at 285p.

The company closed slightly down at 283p and is currently trading at that price, giving it a current market capitalisation of £1.6bn.

To be sure, Just Eat is growing fast and is profitable

For its fiscal year 2013, Just Eat took revenue of around £97m, that’s a healthy 62% growth over the previous year’s figure of £60m.

Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at £14m up from 2012’s figure of £2.3m. The company made a net profit of £6.8m versus a loss of £4.5m last year.

For the period, the company’s total number of orders grew 59% at 40,171, while the number of takeaway restaurants signed up to its platform increased by 22% to 36,415.

Just Eat’s US-based equivalent boasts similar

GrubHub, which started trading today, priced its offering yesterday at $26 per share – above its range of between $23 and $25.

By the way, that range was revised up from its previous range of between $20 and $22. The company has opened today up 54% at $40, for an implied valuation of around $3.1bn.

For its fiscal year 2013, GrubHub took revenue of around $137m, a notable 67% growth over the previous year’s figure of $82m.

EBITDA came in at £38m up from 2012’s figure of £17m. The company’s net profit however declined to $6.7m from $7.9m last year.

For the period, GrubHub’s so-called Daily Average Grubs (it defines this as the number of revenue generating orders processed each day) grew 45% at 135,500, partly thanks to its recent merger with rival, Seamless. The number of restaurants on its network went up to around 28,000 from some 10,000 the previous year.

Indeed, both companies are growing fast and that’s reason enough to grab investors’ attention.  

But valuations are steep: Just Eat’s valuation works out to around 16x trailing sales; GrubHub at 22.6x.

For context here’s a real technology player, whose valuation has been argued as lofty: UK-based microprocessor designer ARM. The company’s chips can be found in most mobile devices and it trades at 19x trailing sales.

All that said, investors seem undeterred, so Just Eat and GrubHub look set, for now, to remain in favour.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.