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Investment

Cramer: Why the Yelp-GrubHub partnership is a match made in heaven

Yelp has announced a $287.5 million deal with GrubHub to sell its food-ordering business to Seamless’ parent company, and Jim Cramer sees heaps of potential in the pairing.

“To me, it seems like a match made in heaven,” the “Mad Money” host said. “In fact, the only thing I don’t understand is why the two companies didn’t merge.”

The all-cash deal will not only sell Yelp’s Eat24 delivery app to GrubHub, but connect the two companies in a partnership that will allow Yelp users to order online directly from GrubHub.

Shares of Yelp rallied some 27 percent after it announced the tie-up in its second-quarter earnings report, which beat analyst estimates. GrubHub’s shares lifted 9 percent on the news.

“I think this partnership has the potential to give both companies a major shot in the earnings arm,” Cramer said.

Each company does have its challenges. Yelp, a website for honest, crowd-sourced reviews has had trouble getting restaurants to sign up in the past for fear of bad reviews from customers.

With GrubHub in the mix, restaurants will have more reason to advertise on Yelp and gain access to other services like reservation booking, advance ordering and coupons.

GrubHub will also pay Yelp a fee for every order sent to them through the review site, making Yelp less reliant on advertising. With Yelp on board, GrubHub will get plenty of exposure, too.

“Put it all together and it’s no surprise the stocks shot up into the stratosphere on the news, or that the analyst community was universally positive about the deal,” Cramer said. “And that’s without really even knowing the financial terms of the transaction.”

And on a broader scale, the deal could stretch beyond just food delivery, the “Mad Money” host said.

Cramer suggested that together, GrubHub and Yelp could have the wherewithal to take on tech giants like Alphabet, Amazon and Uber, all of which have a stake in reviews or food.

Alphabet’s review feature on Google is a challenger to Yelp, for one. Amazon’s acquisition of Whole Foods could put the e-commerce giant in the food delivery ring for good. And Uber has UberEats, a delivery app of its own.

“This partnership helps to make Yelp and GrubHub the undisputed kings of the online food space,” Cramer said.

But the “Mad Money” host acknowledged that any of those three tech giants could still outspend Yelp or GrubHub by far if they decided to get serious about this business.

“Here’s the bottom line: Yelp and GrubHub were already improving before the news of this fantastic partnership broke nearly two weeks ago, and it shook the world in this sector. But I think this tie-up could power these two abandoned tech names to even higher territory,” Cramer said. “That’s why I believe both stocks are worth owning here even after these runs, and especially on any market-wide pullback like we had back on Thursday.”

Disclosure: Cramer’s charitable trust owns shares in Alphabet.

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Source: Investment Cnbc
Cramer: Why the Yelp-GrubHub partnership is a match made in heaven

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