Description

Overview:

• OLO is a technology company servicing the restaurant industry with platforms specializing in online ordering, payment processing, and customer engagement solutions. The company's leading and innovative offerings have positioned it as a key player in the rapidly growing restaurant technology market. OLO enables over 700 brands to jointly reach 85 million plus connected guests across 82,000 locations. The company is processing over two million orders per day. OLO has solutions for every guest touchpoint: payment, dine-in, reservations/wait list, takeout, drive-thru, engagement and delivery. The stock is substantially undervalued and is an attractive takeout candidate. As such, OLO represents a promising investment opportunity.

Thesis:

• Large and Growing Industry with Compelling Drivers.
• The restaurant industry is undergoing a digital transformation, driven by factors such as convenience, mobile adoption, and changing consumer preferences. Few restaurant brands have the budget or willingness to invest the money necessary to develop their own systems. Customers want a more frictionless experience. Food away from home spending is rapidly increasing and share is now at 56% and growing at a decently faster pace than food at home spend. OLO's solutions align with these industry trends, creating a favorable environment for growth.

• Robust Revenue Growth.
• OLO has demonstrated consistent revenue growth, fueled by its expanding customer base and the increasing utilization of its platform and offerings. The company's ability to generate recurring revenue streams provides a stable foundation for future growth. The company highlights this history of growing with their restaurant brands in the cohort chart below from its Q2 investor presentation.

• Compelling Growth Drivers.
  • OLO will benefit from adding more locations as their existing customer base grows the number of locations and from adding new customers.
  • Locations grew 7% yoy in Q2.
  • ARPU grew 19% yoy in Q2 and has grown at a 16% CAGR since 2020.
  • The company notes that only 16% of restaurant orders are digital and there is a growing customer importance around digitally optimizing the off and on-premise business experience and costs.
  • OLO entered the payments business in 2022. The market opportunity for OLO Pay is substantial and enables higher profitability for OLO’s customers as OLO Pay will provide 4x more revenue/order. To date, OLO Pay has been used for card not present transactions.  Starting in 2025, OLO will begin addressing the substantially larger card present market as well. While OLO Pay has much lower gross margins than the company’s software offerings, the potential for huge gross margin dollars and creating a stickier customer base make OLO Pay a compelling endeavor.
• Number of Locations.
• ARPU.
• More digital orders/location.
• OLO Pay.
• Fortress Balance Sheet.
• OLO currently has a whopping ~$400MM in cash and investments.  This sum compares to OLO’s market cap of about $900MM.  Furthermore, the company is already cash flow positive, so that huge cash stock pile is actually growing.
• Stock Repurchase Program.
• The company has historically been an active repurchaser of its shares.  In Q2 of 2024, the company bought back 1.4mm shares for $6.9MM to complete a $100MM buyback plan.  An incremental $100MM program has now been authorized.
• Market Position.
• OLO has established a dominant market position and our diligence notes that their products are largely considered best in class and very sticky.
• Guidance De-Risked.
• OLO reiterated Q3 and full year guidance this past week in conjunction with a 9% workforce reduction to improve margins. Some of the savings will be used to further invest in the company’s growth initiatives.
• Takeout Candidate.
• OLO is an attractive takeout candidate. There are numerous companies in and around the industry that would benefit from acquiring OLO and there should be substantial synergies with certain strategic buyers.
• Compelling Valuation.
• OLO is trading at 1.3x 2025 revenue and 1.1x 2026 revenue. These multiples are more in-line with tech companies that are on the verge of going away, not companies that are growing mid-teens plus, are already profitable, and have substantial market opportunity ahead.

OLO's cheap valuation, fortress balance sheet, takeout potential, attractive growth profile, industry dynamics and strong market position make it a compelling investment opportunity. The company's ability to capitalize on the growing trend of digital ordering and payment in the restaurant industry positions it for long-term success. While the competitive landscape and economic factors pose potential risks, OLO's strong fundamentals and strategic focus provide a solid foundation for future growth. OLO is a stock with multi-bagger potential.

Catalyst

Takeout

Capital Deployment

Continued Growth

OLO Pay Execution