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GrubHub Raises $192M Pricing IPO Above Marketed Range

20 points by yueq 13y ago

refrigerator 13y ago
Is it just coincidence that Just Eat (GrubHub for the UK) IPO'd today too?
mbesto 13y ago
> At the IPO price, it will debut at a valuation of about $2 billion, or almost 15 times last year’s revenue. Can someone with a classic financial finance background answer this: why do analysts take revenue * multipliers for valuations? Aren't most valuations based on EBITDA * multipliers? Is this just an odd side effect of the numerous tech companies without EBITDA?
- lauradhamilton 13y ago
  Very young, fast-growing companies will often have negative EBIDTA, in part because they are growing so quickly. When this is the case, using a multiple of EBIDTA does not really make sense. For an older company that is not growing or is growing slowly, an EBIDTA multiple makes more sense.
  - mbesto 13y ago
    Makes sense. But for a company that is on the brink of IPO (or recently IPO'd) doesn't this mean they are no longer young or fast-growing, but rather steady, matured and more predictable? (hence opening up to a larger, more public and less sophisticated set of investors)
    - mattzito 13y ago
      Some are - some are still very much in growth mode, or on track to be acquired by a larger player for strategic value, both of which can screw with the multiple.
- drone 13y ago
  I don't have a classical finance background, but I have started and sold companies that have been valued on revenue and on EBITDA. Here's my simplified take on it, YMMV: For companies with high variable costs, you value on EBITDA. For companies with low variable costs, you value on revenue. Consider a widget maker, each widget he sells for $1.00 costs him $0.65 in materials to make, his margins are 35% per sale. Therefore, it's much better to value his company based on EBITDA, or how effective he is after all of those variable costs that can't be whisked away. Now, consider a SaaS app maker. She has a variable cost of about $0.03 for every dollar she sells in services, or 97% margin per sale. You'd value based on her revenue, as profits are not constrained by variable costs, but by fixed costs which can be reduced if needed.
  - mbesto 13y ago
    Cool, thanks, that was really insightful. One counterpoint about this statement: > You'd value based on her revenue, as profits are not constrained by variable costs, but by fixed costs which can be reduced if needed. If we assume that acqui-hires are indeed a model in today's M&A, then doesn't this negate the idea that these fixed costs are fungible (i.e. people) and therefore cost reduction is not possible? Also, I keep hearing this notion that cost of sale goes down in SaaS. This might be true in early to mid stage SaaS, but at mass scale, I haven't seen this to be true.
    - drone 13y ago
      Acqui-hires have little to do with business fundamentals, and are outside of the scope of this calculation. They're simply measured as "Enough to attract the talent away from their existing venture." Typically in these deals, the core business is shut down and the variable/fixed costs aren't given any relevance. I'm not sure about there being a hard and fast rule of cost-of-sale in SaaS - I would expect that's largely based on the target customer, enterprise targets are usually going to have a higher customer acquisition cost than consumer targets. Or, by cost of sale, do you mean variable cost? If variable costs approached those of manufacturing in software companies, you'd have to take a hard look at the management and consider replacing them quickly. =)
codemonkeymike 13y ago
I looked into GrubHub to do online ordering for my mothers deli, after seeing the roughly 25% fee I can safely say that many small business will look elsewhere... eventually.
- rory096 13y ago
  Hey Mike! Not to blatantly self-promote on HN, but my startup Foodio (http://getfoodio.com http://getfoodio.com) is based around the ideas that GrubHub's fees are insane; restaurants can't wait for their money for a week; and online ordering should promote the restaurant's brand, not a middleman. We charge $295 to build custom online & mobile ordering, and then it's just 5% of sales. We're a small startup out of Charlottesville, VA, but we'd love to help out your mother if we can! Hit me up at rory at getfoodio dot com if you're interested.
  - mason55 13y ago
    Your choice really depends on your brand. I live in NYC and most of the time that I order food online I just go to Seamless and decide what looks good. There's only been one restaurant that I order from off their own site and that's a pizza place that I love that isn't on Seamless. If you're a random sushi or Chinese place it's worth the 25% to be in the Seamless directory because otherwise no one will ever order from you. Katz's Deli could probably get away with ordering on their own site because their brand is good enough.
    - rory096 13y ago
      I agree, there's something to be said in many cases for marketing to new customers with those services. But those restaurants should have both- high-fee marketplace services for discoverability, and reasonably priced online ordering of their own for loyal customers and when directing customers online. No restaurant should have to tell people the only way to order online is to find them on a site buried under every competitor in town- unless they pay big extra commissions to float to the top.
    - codemonkeymike 13y ago
Edmond 13y ago
Whatever else, the GrubHub guys are impressive entrepreneurs... Back in about 2006 when they were just starting out, I had a competing site and remember how sh*tty their site was (even had .jsp in the homepage file extension!); from that to becoming a $2 billion company (granted with Seamless merger)...all hats off to them...

20 points by yueq 13y ago

Is it just coincidence that Just Eat (GrubHub for the UK) IPO'd today too?

> At the IPO price, it will debut at a valuation of about $2 billion, or almost 15 times last year’s revenue. Can someone with a classic financial finance background answer this: why do analysts take revenue * multipliers for valuations? Aren't most valuations based on EBITDA * multipliers? Is this just an odd side effect of the numerous tech companies without EBITDA?

lauradhamilton 13y ago
Very young, fast-growing companies will often have negative EBIDTA, in part because they are growing so quickly. When this is the case, using a multiple of EBIDTA does not really make sense. For an older company that is not growing or is growing slowly, an EBIDTA multiple makes more sense.
- mbesto 13y ago
  Makes sense. But for a company that is on the brink of IPO (or recently IPO'd) doesn't this mean they are no longer young or fast-growing, but rather steady, matured and more predictable? (hence opening up to a larger, more public and less sophisticated set of investors)
  - mattzito 13y ago
    Some are - some are still very much in growth mode, or on track to be acquired by a larger player for strategic value, both of which can screw with the multiple.
drone 13y ago
I don't have a classical finance background, but I have started and sold companies that have been valued on revenue and on EBITDA. Here's my simplified take on it, YMMV: For companies with high variable costs, you value on EBITDA. For companies with low variable costs, you value on revenue. Consider a widget maker, each widget he sells for $1.00 costs him $0.65 in materials to make, his margins are 35% per sale. Therefore, it's much better to value his company based on EBITDA, or how effective he is after all of those variable costs that can't be whisked away. Now, consider a SaaS app maker. She has a variable cost of about $0.03 for every dollar she sells in services, or 97% margin per sale. You'd value based on her revenue, as profits are not constrained by variable costs, but by fixed costs which can be reduced if needed.
- mbesto 13y ago
  Cool, thanks, that was really insightful. One counterpoint about this statement: > You'd value based on her revenue, as profits are not constrained by variable costs, but by fixed costs which can be reduced if needed. If we assume that acqui-hires are indeed a model in today's M&A, then doesn't this negate the idea that these fixed costs are fungible (i.e. people) and therefore cost reduction is not possible? Also, I keep hearing this notion that cost of sale goes down in SaaS. This might be true in early to mid stage SaaS, but at mass scale, I haven't seen this to be true.
  - drone 13y ago
    Acqui-hires have little to do with business fundamentals, and are outside of the scope of this calculation. They're simply measured as "Enough to attract the talent away from their existing venture." Typically in these deals, the core business is shut down and the variable/fixed costs aren't given any relevance. I'm not sure about there being a hard and fast rule of cost-of-sale in SaaS - I would expect that's largely based on the target customer, enterprise targets are usually going to have a higher customer acquisition cost than consumer targets. Or, by cost of sale, do you mean variable cost? If variable costs approached those of manufacturing in software companies, you'd have to take a hard look at the management and consider replacing them quickly. =)

codemonkeymike 13y ago

I looked into GrubHub to do online ordering for my mothers deli, after seeing the roughly 25% fee I can safely say that many small business will look elsewhere... eventually.

rory096 13y ago
Hey Mike! Not to blatantly self-promote on HN, but my startup Foodio (http://getfoodio.com http://getfoodio.com) is based around the ideas that GrubHub's fees are insane; restaurants can't wait for their money for a week; and online ordering should promote the restaurant's brand, not a middleman. We charge $295 to build custom online & mobile ordering, and then it's just 5% of sales. We're a small startup out of Charlottesville, VA, but we'd love to help out your mother if we can! Hit me up at rory at getfoodio dot com if you're interested.
- mason55 13y ago
  Your choice really depends on your brand. I live in NYC and most of the time that I order food online I just go to Seamless and decide what looks good. There's only been one restaurant that I order from off their own site and that's a pizza place that I love that isn't on Seamless. If you're a random sushi or Chinese place it's worth the 25% to be in the Seamless directory because otherwise no one will ever order from you. Katz's Deli could probably get away with ordering on their own site because their brand is good enough.
  - rory096 13y ago
    I agree, there's something to be said in many cases for marketing to new customers with those services. But those restaurants should have both- high-fee marketplace services for discoverability, and reasonably priced online ordering of their own for loyal customers and when directing customers online. No restaurant should have to tell people the only way to order online is to find them on a site buried under every competitor in town- unless they pay big extra commissions to float to the top.
  - codemonkeymike 13y ago

Edmond 13y ago

Whatever else, the GrubHub guys are impressive entrepreneurs... Back in about 2006 when they were just starting out, I had a competing site and remember how sh*tty their site was (even had .jsp in the homepage file extension!); from that to becoming a $2 billion company (granted with Seamless merger)...all hats off to them...