Buy Landcadia Holdings, Not GrubHub
Convenience, accessibility and just pure laziness are major factors driving the global online on-demand food delivery services market. With a few clicks on their cell phone, millennials are the largest consumer segment to use this internet service.
GrubHub (NYSE:GRUB) is the world's leading online and mobile food ordering company, currently partnering with over 80,000 restaurants in 1,600 U.S. cities. Despite competition from the likes of Uber, DoorDash, Postmates, Square and Amazon, GrubHub still controls 50% of the U.S. food delivery market according to research firm Second Measure.
But the founder and CEO Matt Maloney believes the restaurant delivery industry is developing and growing. Matt had the following to say in a conference call earlier this year.
We're just breaking into a lot of these markets with the support of significant restaurant chains. So it feels like ... restaurants are still testing the waters and trying to understand how online ordering and online delivery support their overall growth. Clearly, with the validation we have through our existing partnerships and the ones that are in the pipeline, everyone is looking at us. And we are likely -- since we're the industry leader, the team to beat. And so we're really taking advantage of the momentum we have by aggressively dialing into ... markets, not just with the expansion delivery, but by accelerating our restaurant sign-up teams.
The restaurants do not have to pay anything up-front or any subscription fees, just a commission fee for every order the platform generates. In addition, GrubHub saves diners' preferences, including previous orders and payment methods, to make the ordering experience as seamless as possible in an effort to drive frequent usage. As a result, the daily average grubs (DAGs), the number of daily orders across GrubHub's entire platform, grew to almost 436,900, a 34.4% increase year over year.
However, the valuation is crazy. GrubHub has surged over 100% percent this year and more than 150% in the last 12 months. It has market cap that is greater than, it’s P/E is greater than 80. Maybe the Markets are pricing in the fact that the U.S. online food delivery market expected growth from $20.2 billion this year to $29.3 billion in 2022, according Statista's. Maybe the Markets think they will get bought out by Amazon and pair it up with Wholefoods. That’s a bit too many Maybes for me.
This is where Landcadia Holdings (ticker: LCA) comes in. Landcadia Holdings was founded by the billionaire Tilman Fertitta's for the sole purpose of acquiring companies in the dining, hospitality, entertainment and gaming industries in the U.S.
He also is the sole owner, CEO, chairman and president of Golden Nugget Inc., Landry's Inc., and Fertitta Entertainment, as well as owner of the Houston Rockets NBA team.
Landcadia Holdings Inc.(NASDAQ:LCA) is acquiring Waitr Inc. for $308 million. Waitr does that same thing Grubhub does, but focuses their efforts in underserved Markets.
A key attraction of Waitr is that it’s fairly priced – for now. Investors who buy LCA stock now are effectively paying the value of the $250 million in cash the company raised, or about $10 a share. Shares of Grubhub, the biggest player in the game, meanwhile, have risen 158% in the last 12 months.
In terms of valuation, Waitr looks like a far better deal than Grubhub. Indeed, if the deal goes through, investors in LCA would own Waitr at an enterprise value, adjusted for cash, of $388 million. That’s a multiple of 6.0 to 6.5 times 2018 sales projections and 3.0 to 3.2 times 2019 sales projections. By contrast, Grubhub trades on multiples of 12.3 times consensus 2018 estimates and 9.6 times 2019 estimates.
Waitr will become a wholly owned subsidiary of Landcadia, which will immediately change its name to Waitr Holdings Inc. and will continue trading on the Nasdaq stock exchange.
Waitr will have access to a portfolio of over 600 restaurants as a delivery partner, four million loyalty members across those 600 restaurants and Golden Nugget Casinos, the opportunity for partner with the Houston Rockets and its more than nine million Facebook followers.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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by rollandthomas
