U.S. equity research firm Raymond James published a report yesterday, April 29th, initiating coverage on ecommerce takeout giant GrubHub. Raymond James analysts Aaron Kessler and Ben Cohen summarize their bull case for GrubHub Inc (NYSE:GRUB).

“Our positive fundamental view is based on: 1) a large and fragmented industry increasingly shifting online, 2) GrubHub’s market-leading position, 3) its strong value for both restaurants and diners, 4) the fact that GrubHub is benefiting from the adoption of mobile devices, and 5) its attractive financials, as we estimate a 22.5% revenue CAGR and 31% EBITDA CAGR (2014-2019).”

The analysts rate GrubHub Inc (NYSE:GRUB) Outperform and placed a $36 price target on the rapidly growing ecommerce firm.

GrubHub Total U.S. Addressable Market

Restaurant marketing moving online

The first point Kessler and Cohen make is that restaurants, especially national chains, are spending a lot more of their advertising dollars online as traditional marketing methods lose effectiveness. The ability for consumers to “discover” a tasty food that appeals to them as well the convenience of ordering online are the factors in the ongoing trend toward online takeout ordering.

Raymond James recently conducted a consumer survey on the subject, and 59% of respondents said they would prefer to order online compared to 41% for phone-based ordering.

Grubhub

GrubHub is the market leader

The Raymond James report emphasizes the fact that GrubHub Inc (NYSE:GRUB) is the market leader in a rapidly growing segment. GrubHub is hands down the number one online platform for takeout orders. GrubHub reported more than 3.4 million active users and was involved in close to $1.3 billion in gross food sales in 2013. The second largest company in the segment is less than one tenth the size of GrubHub. Kessler and Cohen argue that GrubHub’s leadership position and scale advantage will allow GrubHub to put a lot more money into branding, customer service and technology compared to local and national competitors.

Mobile play

Last but not least, the Raymond James report highlights that GrubHub Inc (NYSE:GRUB) is also a strong mobile play. According to company data, 44% of GrubHub orders came through a mobile device in the fourth quarter of 2013, more than doubling from 20% at year-end 2011. “We believe that consumers’ adoption of mobile devices leads to significant incremental orders for GrubHub (vs. PC only) and should help drive strong long-term order growth for GrubHub.”