Yelp Gets a Big Boost From Eat24 Sale

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When local business guide service Yelp Inc. (NYSE: YELP) reported second-quarter earnings Thursday afternoon, shares jumped nearly 20% following a massive profit beat and a solid revenue beat. The company even raised its full-year guidance.

What analysts have focused on Friday morning, however, is the sale of Yelp’s “Eat24” food delivery service for $287.5 million in cash to GrubHub Inc. (NYSE: GRUB). The two companies also announced a “long-term partnership” in which Yelp will integrate online ordering from all GrubHub restaurants onto its local platforms.

The tie-up was hailed by Raymond James analyst Justin Patterson who wrote that “the GrubHub partnership marks the best of both worlds for Yelp” because it “improves the customer service experience, avoids investment/competition, and retains a customer acquisition funnel.”

Avoiding competition in the delivery business is probably a good idea these days, given the moves that e-commerce giant Amazon.com Inc. (NASDAQ: AMZN) seems to be making in any business where there’s even a whiff of profitability and where the company can turn a small wedge into a big one. Yelp now can focus on what it does best, and GrubHub gains scale to push back against potential competitors.

Analyst Rob Sanderson of MKM Partners raised his rating on Yelp stock from Neutral to Buy and boosted his price target to $48.

GrubHub CEO Matt Maloney said:

Adding Eat24’s large diner base and thousands of restaurants to our platform will accelerate Grubhub’s mission to become the most comprehensive marketplace connecting takeout diners and restaurants. The long-term agreement ensures that Grubhub also has access to Yelp’s enormous user base and clear content leadership to help drive more diners to our restaurants.

GrubHub said it will fund the acquisition of Eat24 through a combination of cash on hand and debt. The company reported cash and equivalents totaling $293.3 million at the end of the second quarter and no long-term debt.

Shares of GrubHub traded up nearly 10% in the noon hour Friday, at $52.79 in a 52-week range of $32.43 to $53.36. The high was posted earlier today. The stock’s consensus 12-month price target is $48.15.

Yelp shares traded up about 27% to $39.89, after posting an intraday high of $40.45. The stock’s 52-week range is $26.93 to $43.41 and the consensus price target is $31.31.