A Merger Could Make Grubhub Scrumptious Again

Still standing despite a drubbing, Grubhub (NYSE: GRUB) lost stock value at a headline-making rate over the past year, but managed a tasty boost to its sales. Analysts think a merger with Amazon (NASDAQ: AMZN) or Uber (NYSE: UBER) could turn Grubhub into a stock market dynamo again, considering that several metrics remain notably positive. Successful food delivery mergers in Germany strongly suggest the analysts are right -- but a recent class action lawsuit against Grubhub could still spoil the soup, meaning investors should stay cautious until an actual merger offer appears.

The food delivery specialist still displays some strong metrics despite Grubhub's share price dropping approximately 70% since its 2018 peak. Using a heavy promotional push, it boosted its number of "active diners" in Q3 from 16.4 million to 21.2 million – a 29% year-over-year jump. Gross food sales in Q3 rose 15% year over year to $1.4 billion.

In his Oct. 28 Grubhub shareholder letter, CEO Matt Maloney defended his focus on advertising. He cited the company's increasing adjusted EBITDA per order, which rose from $0.98 in Q4 2018 to $1.28 in Q3 2019 – a 31% profit increase per meal. Maloney's arguments remained somewhat vague, but he suggested that Grubhub's large-scale marketing served as an advertising substitute for smaller partners, allowing them to sell more profitable meals efficiently while incurring lower overhead costs.

Source Fool.com