You bring up some great points. I probably won’t dig too far into this one just due to lack of time and no real interest in the investment. Having said that, GRUB could well be a good investment, don’t take my lack of interest as a condemnation in the idea. One can only swing at so many pitches. I responded in line below.
No MOAT? Have you heard of the network effect? GRUB has the diners on their site, and the restaurants. New entrants can slowly signup restaurants, but will still need diner traffic.
The restaurants around us (sf bay area) all have multiple ipads with each services app running on the device to manage the orders from the 3-5 different delivery services they use. This is just an anecdote so don’t put too much weight in it but I was discussing the situation with the owner of a very popular fast dining place near by. He said they have one person who’s main job it is too coordinate all the different delivery services. As for as the diner side, when we talk about getting something delivered we poll the group who has a coupon/promotion for one of the myriad of delivery services around here. We have zero, absolutely zero customer loyalty. The delivery market is definitely growing rapidly but the competition is fierce. These are well funded companies that are willing to throw money at the problem. From Matt’s post, “Uber Eats 28%, Doordash 18%, Postmates 12% and Caviar 3.5%”
On the other hand, many of the companies you mention can be replaced with better technology offerings. OKTA is an outstanding product, but has many competitors. Centrify is one example. I have used it in my previous and current company. But centrify and OKTA cannot rest on their laurels.
I don’t disagree but the switching cost for a company to switch away from their database or single sign on/security solution is much higher than it is for me as a diner to install a new app on my phone and enter my credit card information.
Also, GRUB - I am not sure they are paying more and more for acquisitions. Apart from Seamless in 2013 and EAT24 recently, the other acquisitions were quite small. Prove me wrong with numbers. Have you got the data to show how much they paid for recent acquisitions when you make such outlandish claims? If so, post the numbers.
I didn’t claim that grub was paying more for their acquisitions but I could see how you could get that from what I said, “They are paying more and more for growth, this is a sign of a company that is in a competitive market. “ I was saying the company is spending more and more to get their revenue growth, not that each acquisition was more expensive. From their CC, “Operations and support expenses were $112 million, a 71% increase year-over-year compared to $65 million in the third quarter of 2017. This was driven by increased delivery orders, the underlying growth of our order volume, and the inclusion of Eat24 orders. As we’ve explained in the past, we expect this line item to grow at a faster percentage rate than revenue, given the mix shift towards more Grubhub delivered orders” et. The rest of their expenses grew 40-51%, roughly in line with their revenue growth.
MDB is not the only nosql db company in the world. Same with ZScaler. Hardly the only internet or cloud security company in the world.
Moreover, most of the companies you mention make no money. Forget declining margin, they have negative profit margins.
I think most of us are more interested in the trend than the absolute number. Take a company who has declining margins vs a company with improving margins and i’m generally more interested in the improving margins. The companies I mentioned have rapidly improving margins.
GRUB had Net margin of 8% in Q3 a year ago and 9.2% in current year Q3. To me that is progress. Sure there were double digit net margin quarters in the past, but nobody here has studied why there was a double digit margin. This isn’t a fully mature business yet. 52% revenue growth requires investing into marketing, R&D, etc. Regarding acquisitions, I am all for them buying small players to consolidate their moat. Instead of spending on marketing to enter a new market, if they swallow the competitor whole, that is far better strategy.
Sure, but they are juicing their return with debt, They have 290 million of debt up from 170 million last year. Don’t get me wrong, at this point they have plenty of cash and cash like assets to service that debt, as well as cash flow. However delivery as well a restaurants are definitely a discretionary purchase . I get nervous about debt in general especially in a business that i think is going to get smacked down with the next slow down.
ZS for example had 63 Million in revenue last quarter, and 7.5 million net loss. I.e net margin of -11.90%. They Revenue grew slightly faster than GRUB at 57.5% (vs 52% of profitable growth for GRUB), but at the cost of losing 7.5 million. Their growth is coming at an expensive price tag.
GRUB reported $247 million revenue, 9.2% net profit margin sells for $7 billion market cap.
ZS reported $63 million revenue, -11.9% net profit margin, sells for $5 billion market cap.
ZS has to yet prove that their growth in revenue will eventually result in profits. GRUB on the other hand is already growing profitably.
I notice you are using GAAP numbers for your net profit margin, ZS is profitable from a non-gaap standpoint. We have had that argument on this board ad nauseam so I just want to mention that, not rehash the argument. Either way a little trend is helpful here. Grubs was 8% now 9.2% as you said an improvement of 1.2%, ZS is now -11.9% and was -28.6% an improvement of 16.7% Everything about ZS is expensive but everything is improving really really quickly and they have no debt. No doubt ZS has risks, just ones I like better than GRUB. I will say, from my quick perusal of their CC and earnings report, GRUB knows their business. Best of luck with your investment!