As demand for food delivery services increases, multiple companies both notable and startups are joining the bandwagon to battle it out with industry leaders like GrubHub Inc (NYSE:GRUB).
Uber, for instance, is entering the sector with UberEats. UberEats will sure disrupt the online food delivery space given Uber’s (the parent company) rich network of drivers. It is for this reason that GrubHub through its conference call hinted on raising its expenditure on sales and marketing to maintain its lead as mentioned earlier.
Company to Increase Marketing Spend
The management argued a couple of points justifying the need to increase marketing spending, “First, we have been slowly increasing our spend all year, and it’s increasing effectiveness as we’ve spent more. Second, our restaurant network is better than ever, due to the GrubHub launch markets and adding thousands of Taco Bells and KFCs.”
GrubHub added that their “product has improved dramatically over the past few years,” and that business will look good in the Q4 has it has always been traditionally.
As of now, Grubhubs continues to command a healthy lead against competitors. The company prides over 280 active markets with a user base of between 16.5 million and 17.5 million.
The company further profits from the commission given by respective restaurants for orders placed through its platform. Users place orders through Grubhub’s site, pays online than the company through its network of drivers make the delivery.
The model is that simple which makes it even easier for newbies to copy. The stiff competition is taking a toll on Grubhub’s margins while raising its cost of user-acquisition. To survive in this nature of the business, a company needs to strike meaningful strategic partnerships. GrubHub has leveraged on this and has partnered with a renowned restaurant like the Yum brands.
Well, contrary to what GrubHub needs at the moment, the company appears to have fallen out of favor with its existing and potential partners. It is paramount for Grubhub to be in good terms with its clients considering that it is difficult (but not impossible) for the company to penetrate foreign markets because of the existing and upcoming competition.
GrubHub’s Appealing Stock
As aforementioned, GrubHub is still in great shape financially. The company made its debut to the stock market with a price of $26 per share back 2014. This trading season mainly, Grubhub’s stock has traded at a 52-week high of $149.35 and a low of $66.07.
As of Monday 07 business day, the shares closed at $79.97 up by 5.54% from the opening price of $76.55. During the session, the shares traded at a high of $80.56 and low of $75.64. As of the trading day the company had a market valuation of $7.28 billion.
Meanwhile, Grubhub made it to Stephen’s list of best ideas for 2019 in the Restaurant category. The list has been around now for over a decade and is based on various analysts’ recommendations.
The company’s stock is the top pick in its sector with a price target that is 102% above its year-end closing price. Wallstreet Analysts Will Slabaugh defended the company’s decision to increase its expenditure on marketing arguing that the move will lead to the acquisition of more diners which will, in turn, translate to more return on investment.