A new company for consideration... OLO

Investment Analysis Clubs Saul’s Investing Discussions
1

This is my 1st proposal for the board, so here goes!!!

Some Background:
This company is a recent IPO, but it was founded in 2005. According to its website, it’s been around to witness the HUGE changes that have occurred in the restaurant industry during the last 15 years. At 1st glance, it seems like a B2C company, but it’s not. “Our enterprise SaaS platform is best suited for multi-location restaurant brands.” In addition, “(our) enterprise-grade open SaaS platform offers lower upfront costs, faster time to market, lower ongoing costs of ownership, built-in best practices from a decade and a half of experience, ongoing innovation, a broader partner ecosystem, and benchmarking against 400-plus other customers (cc, May 12, 2021).

What does it do? In a nutshell, the company “enables hospitality for the digital age”… whether consumers eat-in, carry-out, drive-thru, or have food delivered. Given the attention toward re-opening the economy, the timing could be quite good for this company.

What caught my attention are 3 qualitative factors: 1) Danny Meyer, one of America’s most influential restauranteurs in high end dining, sits on the board; 2) the company has an impressive (and growing) list of major customers (e.g. Cheesecake Factory, Wingstop, Denny’s, Five Guys, Subway, Chili’s, Chuy’s, Shake Shack, among others); and 3) it has recently reaffirmed its relationships with DoorDash and UberEats. The CEO is a founder of the company.

So who is this company? OLO… formerly known as Online Ordering.

Some Financials from Q1:
Mkt Cap: ~3.3b
Revenue Growth: 125%; revenues 36m, up from 16.1m a year ago; platform revenue 136%
Gross Margin: 83%, up from 74% a year ago
Non-GAAP Operating Margin: 17%, up from -10% a year ago
$BNRR: >120%
Adjusted Net Income: 6 million, up from -1.7 million a year ago
Non-GAAP EPS: positive +.03, up from a negative -.01 a year ago
Non-GAAP Free Cash Flow: 4.0 million, up from 3.6m a year ago
Locations: 69,000 (or over 400 multi-location restaurant brands); this is 42% greater than a year ago

This is a young public company, and it should be approached with caution. But the fundamentals are enticing, and the story involves some heavyweight restaurant brands, in an industry with some favorable tailwinds. I’ll be interested to hear the board’s thoughts on OLO.

Breezyday

27 Likes
2

This company had significant tailwinds from COVID and will face difficult comparables starting next quarter. They actually guided to a decline in sequential revenue for Q2 (Q1 revenue = 36m and Q2 guidance is 33-34m)

I like this company because of the high switching costs, sticky platform and usage based revenue (some of the revenue is dependent on the number of online orders which will continue to increase), but I want to see the growth rates post-COVID before starting a position, I wouldn’t be surprised if they will slowdown to 30-40% growth towards the end of the year, which is too low for the board.

7 Likes
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What were they doing from 2005 to 2020 to only achieve a 65M annual run rate? It’s positive, or at least better than the alternative, that they successfully harnessed the COVID tailwind to grow, but that revenue is very low for a SaaS business that’s been around for over 15 years.

1 Like
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I actually owned it once it came out but sold when they were sued by Doordash. Do not like to have companies in my portfolio with non frivolous lawsuits filed against them. They have settled that lawsuit but have not looked back at them due to the many opportunities in other areas the market has currently thrown open for us. Went back in stocks like UPST,SNOW,TTD which I picked up recently.

1 Like
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As a person that owns restaurants I’ll chime in here. My restaurants are all full service sit down dining. Not fast food.

First I would never ever use delivery services as they take 30% of the revenue. I’m not working for them. Second, to go orders are a pain in the $&#&#, slows down your kitchen and many dishes do not travel well.

So I understand the need for fast casual and fast food to do delivery. The misconception here is that it was the pandemic that launched to go and especially delivery. It was not. Yes it increased delivery and to go by a multiple of two or three times in some cases, and as openings are being rolled out and more people are choosing to dine in, sales for to go and delivery have to be falling.

That said, the food delivery segment was growing rapidly pre pandemic. One example I can speak of is a smaller fast casual chain called Tender Greens. I know for fact that by December of 2019 their food delivery business was already up to 60 to 65% of sales. They were already deep into transitioning their business model.
Look at Chipotle as well. The new CEO made it his number one goal when he cam on board pre pandemic to streamline their delivery business. He saw what was happening. So what did he see? What was the trend?
Millennials had discovered food delivery and embraced the concept.

The other phenomenon from the delivery movement are ghost kitchens that are popping up all over the place in every city in the nation. Small kitchen spaces, sometimes shared, doing delivery only. There’s one near me that has 30 concepts working out of the same large community kitchen space. I have an independent one a block away in a 300sq foot space making gourmet pizza that has a side alley door, amd all you see are food delivery vehicles pulling into the alley to pick up and deliver pizzas. This is the new reality in fast casual dining. Less rental space, less employees, streamline delivery only. Lower all your costs, including workers comp, payroll, rent, healthcare costs. Again, this is where the restaurant industry is heading and it’s fasted growing segment by far.

Why have to leave your dwelling, get in a car, look for parking, take a long walk, drive back to hour place, when for 5 bucks you can have it delivered. Put an order in on your phone app and go on with whatever you were doing and food shows up at your door. Yea the older generation might not get it, but the younger generation became addicted to it and fast.

So food delivery is here to stay. OLO will continue to do business. I know of one restaurateur here in Los Angeles that already has a private company with a competing product and they are signing big chains as well. So there is competition.
Yes the comps might be tough over the next 6 to 9 months, but this is a real business that fills a need as long as the younger generations have cell phones to order from, and I don’t think that demographic is ever going away.

TMB

103 Likes
6

Here’s revenue numbers I pulled from their S1

I looked at Olo but decided to pass for now. In my opinion, they are in the Zoom bucket. In Q2 2020, their business boomed as restaurants onboarded as they struggled to survive. Now, we’re waiting to see what is next, and the company has guided for zero growth in the second half of the year. I’ll be watching their QoQ growth in the next quarter


		03           06	          09	      12	
		Q1           Q2           Q3	      Q4           FY
2019		10,352.00    12,139.00 	  14,162.00   14,038.00    50,691.00 
Seq growth 	             17%          17%	      -1%	
						
2020            16,068.00    24,304.00    27,505.00   30,547.00    98,424.00 
YOY growth	55%	     100%	  94%         118%         94%
Seq growth	14%          **51%**          13%         11%	
                            **(Covid Q,**
                            **look at the**
			    **QoQ growth)**
			
2021            36,123.00    34,400.00    35,000.00   35,000.00    140,523.00 
YOY growth	125%         42%          27%         15%          43%
Seq growth	18%          -5%          2%          0%	
                           **(Next Q's        (And here's what**
 **guidance)        they'll do in Q3 and Q4**
 **if they hit FY guide)**
5 Likes