Description

Waitr (Ticker: WTRH, “the Company”) is an on-demand food ordering and delivery company.  It is similar to Grubhub, UberEats, etc. in that it allows consumers to seamlessly order food delivery from a web browser or mobile app.  It’s a ~$1.1bn company (fully diluted) with ~$20mm of net debt that will do ~$250mm+ of revenue in 2019.  The reason why it’s interesting is that, despite the recent run in the stock price, it’s still trading at ~4x revenue (a discount to peers at 5-9x revenue), but it will grow revenue organically ~60%+ over the next several years (faster than peers in the 20%-40% range).  Ignoring inorganic growth, which the Company will continue to pursue, the stock could approach ~$20-$25 (40-80%+ upside) over the next ~12-18 months representing ~4-5x ~$400mm+ of 2020 revenue.  On the flipside, if execution missteps occur / competitive challenges emerge and the Company misses its recent $250mm 2019 guidance, there’s likely ~20-25% downside toward ~$11 representing ~3x decelerating revenue and a favorable risk-reward.

Taking a step back, the Company was founded in 2013 in Louisiana with the mission to become a leading restaurant platform for online ordering and food delivery in underserved US markets.  It’s largely flown under the radar as the Company remained private until Landcadia, a publicly traded SPAC helmed by Tilman Fertitta (owner of the Houston Rockets and CEO/owner of Landry’s), merged with Waitr last November and effectively took it public.          

The Company took a unique approach vis-à-vis the competition by going into 2^nd and 3^rd tier markets that were underserved by the incumbents (yet markets 51-500 still represent a substantial ~35% of total US restaurants).  Waitr was operating in 40 of these markets across 11 states in the South/Southeast by the end of 2018, and they identified 200 new markets within this existing footprint to continue to drive organic growth.  However, the Company accelerated this land grab opportunity and recently acquired Bite Squad (deal closed in January) to essentially double their existing business and footprint to 22 states (both Waitr and Bite Squad will each contribute ~$125mm+ of revenue this year).  They will continue to attack this opportunity by opening a new market approximately once every two weeks that methodically starts with ~40+ restaurants and just ~$200k of investment.  Their launch process has continuously improved over the years and one of their latest markets (Jackson, MS) took just six days to reach 1000 orders (vs. ~76 days for markets back in 2014), and it takes just ~350 orders per day for them to breakeven.  Beyond simply going after underserved markets, Waitr also partners directly with each of the restaurants on their platform providing menu onboarding, marketing resources, analytics insights, and dedicated restaurant/consumer support.  They also offer a more attractive ~15% ‘take rate’ vs the competition closer to ~30% which has led Waitr to have the most restaurants on its platform in the majority of their markets (and nearly ~3x as many as Grubhub in overlapping markets).  This has led Waitr to garner a market share of nearly ~60% of online food delivery transactions among the top 5 competitors in markets where they operate.       

In addition to an attractive value proposition for restaurants/consumers and the first mover advantage, online food delivery itself is in early days and will continue to experience secular growth over the coming decade.  The US restaurant industry does about ~$500bn of sales of which ~$220bn is ‘off-premise’.  Of this $220bn, just ~$13bn or ~6% is conducted by online platforms.  This compares favorably to online penetration of other verticals such as advertising and travel (~50% online penetration) and dating (~33% online penetration).  Industry forecasts expect the online delivery penetration to double over the next five years.  In other words, it is still early days in the secular transition from offline to online ordering which should drive organic growth in existing markets (customers and frequency) as Waitr continues to expand its footprint.

In summary, an investment in Waitr is an attractive way to play the continued adoption of online food delivery in an asset that offers a differentiated platform (2^nd tier markets, favorable restaurant economics, leadership position) with higher embedded organic growth, but at a lower valuation (EV/Sales) than peers.  While the stock appears a bit extended after the run following some publicity around the latest results, this year’s guidance is very achievable, and it has a reasonable chance of ultimately trading north into the $20’s for ~50%+ upside over the next handful of quarters.  Competition from deep pocketed rivals and execution missteps on the current merger integration are the primary risks of which to be mindful.  Lastly, additional accretive M&A by the Company is likely and the Company itself may ultimately be an attractive target as the fragmented industry continues to consolidate. 

Investment Highlights

·         Secular industry growth: online food delivery is just ~6% of off-premise restaurant sales and is expected to double over the next handful of years.

·         Differentiated platform: 2^nd and 3^rd tier markets, direct relationship with restaurants, drivers are w-2 employees.

·         New market pipeline: 200+ market pipeline should provide ~60% organic growth the next few years.

·         Leading market position: most restaurants on their platform in majority of markets, ~60% transaction share.

·         Reasonable valuation: trades at ~4.0x sales but growing 2x+ faster vs comps that trade ~5-9x sales.

·         Attractive unit economics:  ~$38 average order (higher than GRUB at ~$32), ~15% take rate + $5 delivery fee, profitable in 34 of 40 Waitr markets as of Q3.    

·         Under-followed / covered: recent SPAC merger, smaller market cap, little wall street coverage.

·         Guidance / setup: $250mm 2019 revenue guidance is reasonable/achievable without heroic assumptions.

·         Aligned management team / ownership: CEO owns 9% of company, Tilman Fertitta (director) owns ~7%.

·         Additional M&A likely: plan to continue to look for inorganic growth which is a reasonable call option.

·         Acquisition target: the fragmented industry will likely continue to consolidate.

Risks

·         Competition: Grubhub, UberEats, DoorDash, BeyondMenu, Postmates, Caviar – there is a decent list of well-financed competitors looking to continue to take share.

·         Execution: merger integration and rolling out new markets could potentially cause execution missteps.

·         Extended stock: The stock just re-rated following some publicity on the back of recent results and may need a little time to consolidate.

Catalyst

·         Additional coverage / institutional ownership:  Currently covered by 3 firms though this should increase

·         Raising guidance: Beating / raising the $250mm of consolidated PF organic revenue for 2019.

·         IPOs of competitors:  Uber / DoorDash IPOs may bring more attention to the group.

·         M&A: Additional accretive M&A from Waitr or in the industry generally.

·         Target: Waitr will ultimately be an attractive target as the industry consolidates.