Photographer: Andrew Harrer/Bloomberg

GrubHub Buys Yelp's Eat24 for $288 Million

The company has bought a bunch of smaller competitors, but bigger ones loom.
GrubHub Inc. is gobbling up its smaller competitors, but trading them in for much, much larger ones. 
 
On Thursday, the company said it would buy Eat24 from Yelp Inc. for $288 million in cash, well over twice the $134 million Yelp paid for the smaller food delivery company when Yelp bought it in February 2015. GrubHub and Yelp are also agreeing to a five-year partnership that will see Yelp integrating GrubHub ordering into its own restaurant listings. When someone places a GrubHub order through Yelp, GrubHub will pay a “partnership fee”, which the company considers a marketing expense.
 
The move mirrors a deal that GrubHub announced with Groupon earlier this week, when it bought Groupon’s ordering platform, OrderUp, which operated in 27 cities, focused mostly on college campuses. In June, the Chicago-based company also bought Foodler, a Boston-based online delivery service. Terms for those deals weren’t released. 
 
For Yelp and GrubHub, the partnership means access to more people placing orders, says Matthew Maloney, GrubHub’s CEO. “The Groupon deal is similar in form but nowhere near in size and scale to this deal,” he says. “It’s going to be huge for both companies."
 
Eat24 has about 40,000 restaurants on its platform, compared with some 55,000 for GrubHub. Because many restaurants use both platforms, the combined entity will have about 75,000 restaurants. The companies say there is far less overlap when it comes to users. Eat24 handled about 50,000 orders daily, about 16 percent of the volume on GrubHub’s platform. 
 
For Yelp, the deal marks a shift in its strategy on how to integrate ordering into its platform. Since late 2013, the San Francisco-based company has been trying to handle transactions, in addition to being a listing service that made money just from advertising. By selling off its ordering platform and partnering with GrubHub, it’s effectively acknowledging that someone else can do that task better. “It allowed us to do what we do best, which was build the Yelp app,” said Jeremy Stoppelman, Yelp’s CEO. 
 
GrubHub has always had an appetite for acquisitions. In addition to the deals in the last few months, it has purchased about a half-dozen smaller competitors over the years. It also merged with its main rival, Seamless, shortly before going public in 2014. That deal drew scrutiny from New York Attorney General Eric Schneiderman, who was concerned about a local monopoly in food delivery; the combined company eventually calmed those fears by agreeing not to lock restaurants into exclusive delivery deals. Maloney says regulators have less to be concerned about this time around. “There’s a lot more competition that has cropped up—well-funded competition,” he says. “We’ll see what they say.” 
 
The announcement coincided with GrubHub’s second-quarter earnings report. Revenue came in at $158.8 million, slightly above analyst estimates compiled by Bloomberg; profit excluding some costs was 26 cents a share, in line with estimates. The company’s had 9.18 million active diners in the quarter, up 25 percent from the same period last year. Shares were up in after-hours trading and were up 28 percent this year as of the Thursday close. Yelp shares surged. 
 
GrubHub’s acquisition spree has effectively ended the first phase of competition in the online restaurant delivery market.  The upside for GrubHub could be more leverage in its relationship with restaurants, which could mean that restaurants pay higher fees for the service. But in the next phase, it won’t be the big fish anymore. Amazon has been increasingly aggressive about building its own online delivery service, as has Uber. 
 
One advantage for GrubHub is that Amazon and Uber have given the smaller company a pretty significant headstart. According to a recent survey by the financial firm Cowen & Company, 34 percent of online delivery customers use GrubHub, while 20 percent use UberEats and 11 percent use Amazon. Eat24 drew in 16 percent of customers. 
 
Then again Amazon is probably just getting started. Rumblings among analysts that it might buy GrubHub sent its stock up significantly in June, further adding to a tear its shares have been on since the company last reported earnings in April. The stock has surged 47 percent since its low for the year at the end of March. But analysts at Morgan Stanley struck an ominous note in June when discussing the likelihood that Amazon would buy GrubHub. The chances are low, they wrote, because Amazon seems to be doing fine building its business without GrubHub’s help, and because the company’s standard strategy is to bleed smaller competitors dry well before it tries to buy them. 
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