Investors show appetite for online takeaway services

Two online takeaway services, Just Eat and GrubHub, made their market debut this week and both have drawn lots of interest from investors.

Now, the sentiment here is that offering products and services via good technology doesn’t necessarily a technology company make.

Nonetheless, UK-based Just Eat and US-based GrubHub are being categorised as technology players, and equally sport the arguably frothy valuations currently being enjoyed by some technology companies.

Yesterday (3^rd April) Just Eat, which priced its offering at 260p per share (the top of its range), opened some 9.6% up – at 285p.

The company closed slightly down at 283p and is currently trading at that price, giving it a current market capitalisation of £1.6bn.

To be sure, Just Eat is growing fast and is profitable

For its fiscal year 2013, Just Eat took revenue of around £97m, that’s a healthy 62% growth over the previous year’s figure of £60m.

Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at £14m up from 2012’s figure of £2.3m. The company made a net profit of £6.8m versus a loss of £4.5m last year.

For the period, the company’s total number of orders grew 59% at 40,171, while the number of takeaway restaurants signed up to its platform increased by 22% to 36,415.

Just Eat’s US-based equivalent boasts similar

GrubHub, which started trading today, priced its offering yesterday at $26 per share – above its range of between $23 and $25.

By the way, that range was revised up from its previous range of between $20 and $22. The company has opened today up 54% at $40, for an implied valuation of around $3.1bn.

For its fiscal year 2013, GrubHub took revenue of around $137m, a notable 67% growth over the previous year’s figure of $82m.

EBITDA came in at £38m up from 2012’s figure of £17m. The company’s net profit however declined to $6.7m from $7.9m last year.

For the period, GrubHub’s so-called Daily Average Grubs (it defines this as the number of revenue generating orders processed each day) grew 45% at 135,500, partly thanks to its recent merger with rival, Seamless. The number of restaurants on its network went up to around 28,000 from some 10,000 the previous year.

Indeed, both companies are growing fast and that’s reason enough to grab investors’ attention.  

But valuations are steep: Just Eat’s valuation works out to around 16x trailing sales; GrubHub at 22.6x.

For context here’s a real technology player, whose valuation has been argued as lofty: UK-based microprocessor designer ARM. The company’s chips can be found in most mobile devices and it trades at 19x trailing sales.

All that said, investors seem undeterred, so Just Eat and GrubHub look set, for now, to remain in favour.