GrubHub Inc. (NYSE: GRUB) is the latest initial public offering (IPO) to take the market by storm in 2014, opening at $40 today (Friday), or 54% higher than its offer price. Through the IPO, the company raised $192 million, which easily beat previous projections.
The money raised in the IPO gives GRUB a valuation of approximately $2 billion.
GrubHub priced its shares at $26 on Thursday, which was above its proposed range of $23 to $25 per share. The GrubHub IPO had been gaining momentum for weeks, as the company revised its range last week from an initial range of $20 to $22.
When GrubHub set its offer price at $26, it also increased the number of shares it offered. The company had initially planned to sell 7.03 million shares, but upped that total to 7.4 million.
In early trading, GRUB stock hit a high of $40.79, but has since settled. The stock was trading near $36 at 12:00 p.m.
GrubHub allows users to place pick-up and delivery orders from restaurants either online or from their mobile devices.
At the end of 2013, GrubHub reported working with nearly 29,000 restaurants and had a customer base of 3.4 million active users. In 2013, it averaged 135,000 orders processed daily, making it the largest food delivery services provider in the United States.
GrubHub reported revenue of $237.1 million last year, which was a 67% increase from 2012. Its net profit was down on the year - from $7.9 million to $6.7 million - but the company attributed that drop to increased spending on sales and marketing. In August 2013, GrubHub acquired competitor Seamless for $422 million, which also contributed to the company's bottom line.
Those profit margins, even though they shrank in 2013, are part of what made GrubHub an attractive IPO investment. According to the Wall Street Journal, nearly 75% of the companies that have gone public in the United States this year were unprofitable at the time of their initial public offering.
Today's $40 opening price shows how attractive GRUB stock was to investors. But where the stock goes from here is contingent on this major factor...
Key to GrubHub (NYSE: GRUB) Stock's Success Moving Forward
GrubHub has demonstrated in the past few years that its business is profitable, but its 2013 acquisition of Seamless was a big step toward ensuring the business succeeds moving forward. GrubHub had a strong hold on the online market at the time of the purchase, but Seamless was much more developed in the mobile industry.
The Interactive Advertising Bureau recently concluded in a study that 69% of consumers who order food online use a mobile device to do so. Mobile apps are also becoming increasingly popular in finding restaurants, menus, and reviews.
The Seamless acquisition has allowed GrubHub to integrate the former company's mobile strategy into its own business model.
"The [GrubHub-Seamless] combination has excellent market share and are known brand names," Rapid Ratings International Chief Executive Officer James Gellert told Bloomberg ahead of the deal. "IPO investors may well be attracted to the names, market leadership position and growth potential."
Additionally, GrubHub has bolstered its mobile presence by partnering with Foursquare. The social media company allows users to "check in" wherever they are via their smartphones or tablets. Through the new partnership, Foursquare users will be able to order food directly through the app.
It also brings Foursquare's 45 million active user base to GrubHub.
GrubHub is trading up 56% from its offer price today, so buying in at these highs now is not the best move. However, if a cheaper buy-in point presents itself, GRUB stock could be a good play for tech investors. The company has strong revenue growth and several years of net profit under its belt and has shown its dedication to capitalizing on the growing mobile market.
Did you buy in on the GrubHub IPO today? What do you think is in store for GrubHub long-term? Let us know on Twitter @moneymorning using #GrubHub or $GRUB.
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The Wall Street Journal:
GrubHub Shares Surge in Early Trading
Seamless.com Owner GrubHub Surges After $192 Million Share Sale