It wasn't that long ago that Zenolytics put out a note detailing how Zillow had the potential to be a great first half story given its track record of outperformance during the first half of nearly every year in its existence. The stock didn't disappoint, creating a gain in the 40% range during the first half of 2019.
As we turn our attention to the second half of 2019, with every intention of replicating Zillow's results with another big swing type of opportunity, GRUB has popped on the radar in a big way. Well, let's be clear, GRUB has been on the radar since it went public some years ago. The current pullback is not something that was forecast by any stretch of the imagination. It is an opportunity, however, to take advantage of the fear related to the massive turbulence that is taking place in food delivery presently.
The turbulence in GRUB's space has been related to a well funded group of competitors making life for the only profitable player in the space (GRUB) difficult. This has led to compressed margins and declining net income as GRUB has had to grab its WuTang Sword to drive back the oncoming swarm.
All the meanwhile, due to the various incentives competitors such as DoorDash and Postmates are offering, which basically equates to free food in some circumstances, the competition is picking up market share. To be sure, DoorDash now has greater overall market share than GRUB for the first time ever. All the meanwhile, DoorDash is getting late round funding at a $13 billion valuation. GRUB is currently trading at a $7 billion market cap for a relative comparison.
Why step into this seemingly crowded market with GRUB?
- Total addressable market here is substantial. To date, we are only seeing 5% saturation in the restaurant digital delivery space.
- Either GRUB is terribly undervalued or venture money is insane for valuing DoorDash at a near 100% premium to GRUB. Highly likely its the former.
- Management at GRUB is terrific. The CEO is the original founder, having grinded from near nothing into a company with a billion plus in revenue. He recently purchased a million dollars worth of stock in the open market. The chief product officer of the company is a former Amazon executive with a vast amount of experience delivering for consumers as AMZN's head of consumable customer experience.
- GRUB possesses an end to end solution for restaurants wanting to enter the digital space, with everything from customer relationship management, reward programs and an end to end digital presence. The 95% of restaurant sales that aren't online is the target here.
- The entire bearish thesis of "losing market share/too much competition" is now common knowledge in the investment community, making it an edgeless, mundane data point, well factored into the stock price after a 60% decline from peak to trough. The near 20% short interest is begging for a squeeze.
Zenolytics has a price target of $150 on GRUB within the next 6 to 9 months as the company regains market share, expands revenue and boosts profitability by targeting new markets within a competitive landscape that is both distracted (UberEats) and can only burn so much cash (DoorDash) before, once again, falling behind the originator in the space.
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