What's Ahead of GrubHub's IPO?

It seems 2014 will be a very busy year for initial public offerings, especially in the tech space. Motivated by the global economic recovery and the recent success of Twitter's (NYSE: TWTR  ) public offering, hundreds of tech companies may be in the IPO pipeline, according to new data published by CB Insights.

One of the latest players joining the tech IPO crush is GrubHub Seamless, an online restaurant menu and takeout-ordering service that has more than 28,000 restaurants registered in its database. According to The Wall Street Journal, GrubHub executives are already meeting investment banks and could be launching the IPO in the first half of the year. What's ahead of GrubHub's initial public offering?

Source: GrubHub

The company
Founded in 2004, the Chicago-based company allows consumers to pick up orders and place delivery with 28,800 restaurants in 600 cities. On average, GrubHub handled 135,000 orders per day in 2013, with gross food sales of $1.3 billion, according to the regulatory filing. The company owns a portfolio of succesful brands, like GrubHub.com, Seamless, MenuPages, and Allmenus.

Note that Seamless and GrubHub merged in late 2013. The combined company to collected more than $137 million in revenue, which is more than double the company's 2011 revenue. According to Venture Beat, the service has roughly 3.4 million active customers.

It's all about growth
In the current market, it is normal to see tech companies that make little to no money trading at very high multiples. This shows that investors may be paying more attention to growth prospects than to fundamentals. A good example is Twitter, which is worth approximately $30 billion. The company, which recently reported its first-ever quarterly earnings, brought in $243 million in revenue in the fourth quarter of 2013, yet only $9.7 million in income, if we omit a one-time payment of stock to its employees.

Just like Twitter, investors may focus on GrubHub's growth potential, instead of focusing on the company's current ability to make money.

In terms of growth, Reuters and other sites initially reported that GrubHub managed to increase its revenue by 67%, year over year. However, as Forbes contributor Brian Solomon notes, to arrive at this amazing growth figure, GrubHub is comparing its 2013 revenue of $137.1 million -- which includes 12 months of sales generated on the Seamless platform, plus roughly five months of sales generated on the GrubHub platform -- with its 2012 revenue figure of $82.1 million, which includes only Seamless' 2012 results.

According to Solomon, the real growth rate for GrubHub was only 35.1%, and the overall growth rate for the combined company was 43%, well below the 67% initially reported.

Getting exposure
Even at a 43% rate, GrubHub seems to be doing quite well in terms of growth. More importantly, mobile device orders accounted for 43% of all orders placed in the fourth quarter of 2013. The company, which only operates in the U.S. and London at the moment, could benefit enormously from expanding its service to other major economies with high mobile penetration rates.

The IPO, which has been rumored since November, may be the biggest tech-food deal since OpenTable went public in 2009. Note that T. Rowe Price, which manages more than $600 billion in assets, became an important stockholder, after purchasing shares from early investors. As of Dec. 31, the company owned 1.4 million shares, valued at $12 million, according to a fund prospectus and The Wall Street Journal.

Final Foolish takeaway
With more than 28,000 local takeout restaurants in more than 600 U.S. cities in its network, GrubHub is probably the largest online restaurant menu and takeout-ordering service. The company, which takes a percentage of the value of online orders, has interesting growth prospects. In America alone, roughly $69 billion was spent on takeout in 2011. Therefore, the company is likely to catch plenty of attention from investors after it goes public.

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