Wall Street Eats Up GrubHub In Market Opening

Investors showed a healthy appetite for shares of online food-ordering service GrubHub, which jumped in its market debut despite a broader market selloff on Friday.

The company, which also runs the Web sites Seamless.com and MenuPages, saw its stock price rise 31% to $34 a share after opening at $26. GrubHub makes money by charging restaurants a commission of 10% to 12% when someone orders through one of its sites or apps.

Not surprisingly, mobile has become a big part of its business. Orders placed on mobile devices increased to about 43% at the end of 2013 from 20% two years earlier, according to GrubHub’s IPO filing. It also takes the same cut for orders made via mobile as on the desktop.

GrubHub’s overall revenue last year climbed 67% to $137 million, with the company posting net income of $6.7 million. That’s the results of 135,000 daily orders across its 600-city network of 28,800 restaurants in the U.S. Merging with Seamless last August help GrubHub accelerate its growth while removing its primary competitor.

That doesn’t mean it’s in the clear. “While GrubHub has a nice lead in this space for now, the key for it now will be to extend its brand and reach. Its brand awareness remains low, and it is mostly known among niches such as office workers and college students,” noted Peter Krasilovsky, VP and program director, marketplaces, at local media research firm BIA/Kelsey, in a blog post Friday.

The company’s competitors include Delivery.com, which boasts a roster of almost 10,000 restaurants in 50 cities, and Eat24.com, which covers 20,000 restaurants in 1,000 U.S. cities. The latter recently got a publicity boost through its high-profile “breakup” with Facebook over the social network’s algorithm that determines what posts users see in the news feed.

Krasilovsky also points out that GrubHub is more than simply an order-taking tool. “It acts as a giant search and discovery engine that can bring customers back to locations, and recommend others when they are in the mood for something else,” he wrote.

In its securities filing, GrubHub said it plans to continue investing in its Web sites and mobile products, developing new products and better leverage the “significant amount of data we collect.” That information is already being shared with restaurants to help them optimize their delivery areas, menus, pricing and online profiles.

GrubHub also plans to pursue further acquisitions as the opportunity arises as part of its growth strategy. The company’s strong market launch on Friday came amid a sharp decline in equities, led by high-growth Internet, social media and biotech stocks. That pushed the tech-heavy Nasdaq down 2.6%, and the S&P 500, 1.3%.

 

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