Investors love to benchmark similar companies. Uber vs Lyft, Facebook vs Twitter vs LinkedIn, Priceline vs Expedia, the list goes on. Comparing similar businesses is a great thought exercise and can deepen one's knowledge about a company or market. One of my favorite comparative case studies is GrubHub vs Just-Eat.
The interesting thing about GrubHub and Just-Eat is just how eerily similar the businesses are. Both are online food ordering marketplaces. Both businesses were founded in the early 2000s, and both employ a similar marketplace model. They both aggregate restaurants that offer delivery, and then allow consumers to order from those restaurants online. Both companies take a marketplace fee which is typically ~10-14% of the order value. The crazy thing is that despite both companies operating in different markets (Just-Eat mainly in the UK, GrubHub in the US) and not competing directly at all, they are like twins.
Both companies IPO'd within a day of each other in April 2014, with GrubHub on the NASDAQ and Just-Eat on the London Stock Exchange. Further still, they had almost the exact same metrics. In the below chart, which I put together several months after their IPOs, you can see that both companies were worth almost the same amount - $2.8B equity value for Just-Eat and $2.9B equity value for GrubHub. Just-Eat's revenues for 2013/2014/2015 were $154M/$235M/$300M, while GrubHub's were $170M/$251M/$333M. EBITDA margin on that revenue was approaching 30-35% for both companies. Naturally, the revenue multiples and EBITDA multiples are also similar.
Despite the commonalities, things quickly started to diverge post-IPO. Let's look at how the stocks have performed since then.
Starting in April 2015, GrubHub started tanking while Just-Eat continued its upward trajectory. As of today, Just-Eat has a market value of ~$4B with revenues this year of $518M and 29% EBITDA margins. The business trades at 7x forward revenue and 24x EBITDA. GrubHub meanwhile is worth just $2.1B, about half of what Just-Eat is worth, and will do $458M of revenue this year with 28% EBITDA margins. That implies a more modest 3.8x forward revenue multiple, and 13.7x EBITDA multiple. So what happened? Why is GrubHub slowing down and also trading poorly relative to Just-Eat? The answer has to do with both market environment and competition.
The US food takeout market, while significantly larger than Just-Eat's addressable market, has particular nuances. For starters, the US has a drive-and-pick-up culture when it comes to food while the UK skews more towards restaurant delivery. In the US, about 60% of the food ordering market is pick-up, which is much higher than in the UK. Additionally, in the US about 10% of takeout is ordered online, versus 30-35% online penetration in the UK. Additionally, while GrubHub is strong in individual cities such as New York, which is a mature market and similar to London, the company is not as strong in other regions. Given that many restaurants in the US don't offer delivery, many new entrants could enter the market with a last-mile delivery offering which poses a real threat to GrubHub's business. Startups such as Postmates and DoorDash (and a slew of others thanks to a generous funding environment), as well as established companies such as Amazon and Uber started entering the market. Outside of New York, GrubHub was forced to alter its business model to offer managed delivery (a costly proposition), and as a result, analysts started revising down their earnings estimates and outlook.
In contrast, Just-Eat was able to avoid most of the aforementioned issues. The UK, which makes up the majority of Just-Eat's business, is highly populated and very dense. It's a country where people are used to ordering food and groceries online. Also, more restaurants tend to deliver which makes Just-Eat's value proposition even more compelling. Currently, Just-Eat has something like 85-90% market share and their profit margins continue to rise. And while there is a bit of logistics competition, mainly from a startup called Deliveroo, it's not enough to pressure Just-Eat's business, at least not in the near term.
By comparing GrubHub with Just-Eat, we can appreciate just how powerful monopolistic businesses are. Monopolies tend to be stickier, have higher profit margins, and have strong competitive moats. While the US often boasts bigger markets in terms of absolute dollars, there are often other dynamics at play that can thwart even the most promising of companies.