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Battle Of The Stocks: Yelp Vs GrubHub

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In this edition of Battle Of The Stocks, we look at two stocks in the online food delivery and reservation business, Yelp [YELP] and GrubHub [GRUB]. While Yelp has well over a million restaurants on its website, GrubHub is an established online ordering service.

The two companies are an online ordering platform that connects diners with restaurants. Here, we look at which stock is a better buy at current levels.

Market Cap

Driven by the massive increase in share prices, the market cap of Yelp and GrubHub have grown significantly since the start of 2016.

Shares of Yelp are trading flat this year driven by a 15% decline in Oct. 2018. The stock is however up 70% in the last 3 years and 50% in the last 18 months.

Comparatively, the GrubHub stock has gained over 250% since 2015 and 100% in the last 18 months. Despite a 36% decline in Oct., the stock is up 24% this year, easily beating returns of major indices.

This staggering climb in value resulted in billion-dollar valuations for the two companies. Yelp’s market cap is currently $3.5B while GrubHub’s market cap is higher at $8.1B.

However past returns are not an indicator of future price movements.

Revenue Growth

Revenue growth is a key indicator to gauge the financial position of any company. Any firm that can grow its revenue at a robust rate will be worth investing in.

Yelp reported sales of $844M last year and it’s estimated to rise 14% to $963M this year. Analysts expect its revenue to grow 18% to a robust $1.14B in 2019.

GrubHub, on the other hand, reported sales of $680M last year and analysts expect its revenue to grow 34% to $1.4B.

WINNER: GrubHub

Profitability

The profit margins of these online ordering portals have expanded, driven by a rise in revenue and operating efficiencies. While Yelp’s operating margin is estimated at 2.8% this year, it’s expected to be 5.4% next year.

GrubHub, however, sees the operating margin at an estimated 18.7% for the current fiscal, while it’s expected to be 18.5% next year

WINNER: GrubHub

Earnings Growth

While the two companies are looking to improve profit margins, analysts and investors are concerned over the earnings growth potential.

Analysts expect Yelp’s earnings per share (EPS) to grow 21% over the next 5 years. Comparatively, analysts expect GrubHub’s earnings to rise 27% over the same period.

WINNER: GrubHub

Analyst Recommendation

We have looked at key financial metrics for the two stocks. Let’s see what Wall Street analysts expect from the companies. Analysts have a 12-month average target price of $51.22 for Yelp, indicating an upside potential of 23%.

Comparatively, analysts expect GrubHub’s share price to rise to $296.94, providing an upside potential of 41% over the next year.

WINNER: GrubHub

It looks like GrubHub is a clear winner in this race. GrubHub is a better bet considering its profit margins and revenue and earnings growth rate. GrubHub also holds an edge due to a larger footprint and a solid reputation for customer service.

The food delivery segment is a high growth one with both companies looking to upstage the other and gain market share. We can see above that the domestic food delivery market is estimated to grow from $23.74B in 2016 to almost $40B in 2021.

Wealthlab Verdict: GrubHub (4-0)

Money

CHART: How Blockchain Powers Bitcoin

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Blockchain, Bitcoin. Bitcoin, blockchain.

The two terms go hand in hand—and have become almost ubiquitous with this year’s insane rise (and fall) of Bitcoin.

But what does it all really mean? How does it come together? In this week’s chart, our friends at CB Insights break down exactly how blockchain powers Bitcoin.

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Business

This Mogul Became America’s 1st Black Billion-Dollar Businesswoman

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Sheila Johnson.

Where to start?

She’s the first black billion-dollar businesswoman. Before Oprah Winfrey.

She started as a TV executive, founding Black Entertainment Television (BET), the first TV network targeting African Americans. She then became a real estate mogul.

Oh, she also owns a stake in three major sports franchises, the NBA Wizards, NHL Capitals and the WNBA Mystics, the African American, period, to boast that claim.

In honor of Black History Month, let’s dive into her remarkable career.

FAST FACTS:

  • Born Sheila Crump in McKeesport, Pennsylvania, Johnson co-founded BET in 1979 with then-husband Robert Johnson. The couple sold it to Viacom in 2000 for $2.9B
  • Sheila Crump Johnson became the first African American woman on the Forbes’ Billionaire list in 2000—beating Oprah Winfrey to the distinction.
  • Per Forbes, Johnson has an $820M net worth as of 2019

 GIPHY

Foray into real estate…

After closing the sale to Viacom, Robert and Sheila pocketed around $1.5B each. Johnson used that windfall as seed money to build a hospitality real estate empire in 2005.

“There’s a disparity in paychecks between whites and blacks,” she told the Wall Street Journal. “I will never forget that.”

As CEO of Salamander Hotels and Resorts, Sheila controls a spectacular portfolio of six luxury hotels in Florida, Virginia and South Carolina. And she’s built it from the ground up—literally—in her own spirit.

“I’ve been to many hotels, not only in the US, but all over the world,” she told Forbes last year. “And I wanted to find something that was going to really make Salamander stand out beyond all of these hotels.”

So what does that mean?

“You have to understand, there are a lot of people, investment companies, with very deep pockets,” she says. “They can do it, but they don’t have the experiences that we’re able to bring. I am constantly trying to find a way to help Salamander Resort & Spa stand out head over heels above any other hotel — not only in the area, but in the nation.

“I want them to leave that resort wanting to come back and not just say, ‘I’ll be back in six months.’ I want them to come back all the time.”

And so far it’s worked. In fact, on Forbes Travel Guide’s 61st list of Star-Rated hotels, Johnson’s Salamander Resort & Spa outside of Washington, DC earned a Five-Star distinction.

Image Credit: Salamander Resort & Spa

Forbes: “Everything [she] touches turns to gold.”

That’s a real quote. From Forbes. Last year. It’s also true.

BET? Billion-dollar exit. Washington Capitals? Stanley Cup.

And Roma. Won 10 Oscars. Who showed it before a single soul started caring? Johnson’s Middleburg Film Festival. (Which, by the way, has 32 films and counting in Academy Award contention.)

Remember her golf resort at Innisbrook? Oh, yeah. Hosts the Valspar Championship, one of the PGA calendar’s most-anticipated tournaments.

Becoming a billionaire comes with a new level of clout as well. “When you don’t have money, you’re not invited to special events; you really don’t matter,” she told WSJ. “It’s a society thing.”

So instead, she’s turned to giving back. Her Sheila Johnson Fellowship’s paid for more then 40 scholarships at Harvard University for students who otherwise wouldn’t afford to attend.

Image result for sheila johnson"

Breaking glass ceilings. 

There’s an alarming statistic in business and diversity—especially as it pertains to women. According to research by investor Richard Kerby, 18% of all VCs are women—and only 3% are black. In addition, less than 50 black women ever have raised $1M in funding.

“When I got started,” Johnson says, “I couldn’t get a loan. I had to use my own money to get Salamander Resort and Spa.”

She explained to WSJ last year that men can go to any bank with a bank proposal. And no matter how “wacky” the idea is, she said, “they’re going to get the financing. Women do not have that ability.”

Johnson’s taken it upon herself to do something about that, becoming one of the founding partners of WE Capital, an investment firm that invests in female entrepreneurs.

“I started out in a very unique position where I had my own capital to be able to get started,” she says. “But there have got to be banks and investors that believe in helping women who want to be entrepreneurs in the hospitality business.

“And it’s just really, really important that they really take a look at this.”

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100% Immediate Expensing Won’t Help Bring Back American Jobs

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Image: Bermix Studio via Unsplash

As the country continues to battle the health and economic crises brought on by the Coronavirus pandemic, leaders and policymakers in Washington are considering a number of tax-related measures to hasten recovery and stimulate the economy in the wake of this generational crisis. One such proposal would expand full and immediate expensing to include structures. The popular thinking is that this measure would incentivize companies to invest in US facilities, including and especially those companies who have historically opted to offshore much of their manufacturing footprint. While this proposal is certainly well-intentioned, if enacted it would have far more negative consequences, and far fewer benefits, than many realize.

It is important to remember that the tax reforms of the 1980s tried this approach, accelerating depreciation to 15 years for real estate in an attempt to stimulate the economy. While thoughtfully considered, this measure resulted in massive overbuilding and the use of real estate as a tax shelter, a dynamic that contributed significantly to the savings and loan/real estate crisis at that time. As a result, the depreciation schedule for structures was eventually lengthened to better reflect the true useful life of a structure or real estate. While measures were put in place to try to prevent entities using the construction of buildings as a tax shelter, there are ways to get around the rules. Expanding immediate expensing to include structures today would incite the same unintended consequences the U.S. experienced in the 1980s.

Some economists continue to cite that immediate expensing of structures, to include manufacturing plants, office buildings, and commercial real estate, would contribute substantially to the growth of gross domestic product and encourage companies to return to the U.S. However, these assumptions are flawed as they do not account for the tax consequences and restrictions unique to real estate, which prevent immediate expensing for structures and buildings from yielding the same economic benefits that may result if applied to other capital expenditures.

These models also do not reflect the very real dynamics of a post-COVID-19 business environment.  In the last few days, some of our country’s largest employers including Facebook and Twitter have offered their employees extended teleworking flexibility well after a phased re-opening of America begins. COVID-19 has shown that through technology, a large number of employees are capable of being highly productive working from home, providing an opportunity for companies to shed tremendous office space costs from their books, and leaving uncertainty to the future need for office space in the U.S.  We cannot afford a situation where office buildings are built for tax benefit rather than market need.

Most economists’ models that demonstrate GDP growth from the inclusion of real estate in full and immediate expensing do not factor in basic real estate tax rules, such as, recapture taxes, passive loss, basis, at-risk limitation rules, or other market drivers, as well as company valuations and shareholder requirements. They also often rely on European data that does not effectively reflect U.S. economic realities. As a result, many of these models overstate both the increased investment that would result from immediate expensing, as well as the extent to which immediate expensing would incentivize U.S. companies to re-shore production lines and facilities currently located overseas.

Also of great concern is the possibility that providing immediate expensing for structures will greatly increase the incentive to utilize debt financing, which many economists believe is already too attractive. Take, for example, an investor purchasing a $10 million building with $8 million in debt financing and just $2 million in equity. Under immediate expensing, that investor would receive a $10 million tax write-off despite having only expended roughly $2 million. This is a dangerous tax loophole that could hinder the U.S. recovery from the economic fallout of COVID-19.

Finally, there is the cost. The most recent estimate conducted by the Tax Foundation found that providing full and immediate expensing for structures would cost the Treasury nearly $1 trillion over the next ten years. While many agree that repairing the damage COVID-19 has wrought to our economy will require significant and innovative government support, there are better ways to stimulate growth and encourage U.S. companies to re-shore their innovation and manufacturing capabilities that do not carry the same unintended consequences.

Fortunately, there are much stronger alternatives to bring companies and innovation back to the United states, to lessen our reliance on foreign countries, and to support small businesses in the wake of COVID-19. Allowing companies to continue to immediately expense research and development and equipment expenses, providing manufacturing facility credits to companies committed to stay in the U.S. and on-shore, developing a robust, but low risk government backed loan program to support critical next generation technology development and manufacturing in the U.S., and providing a more immediate payroll tax holiday for small businesses and individuals. These types of highly effective actions that would result in a more impactful near-term and long-term stimulus to the nation’s businesses and job opportunities for Americans.

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