NOTE: This is a reprint of the first recommendation from The Warrant Observer, which was released January 17, before Waitr’s offer to redeem the warrants at a premium. I still believe the stock is a buy for the reasons detailed below.
Waitr Holdings Inc. (WTRH, WTRHW)
Waitr Holdings Inc. (WTRH, WTRHW) is taking advantage of this third trend (the opening section of The Warrant Observer, not printed here, was focused on “the sharing economy” and the growing trends there) by offering delivery logistics services for restaurants. Waitr was purchased by SPAC, Lancadia Holdings in 2018. The Waitr stock warrant, WTRHW, is exercisable at $11.50 per share and has a 5 year expiration date stretching to 2023.
Waitr was founded by CEO Chris Meaux and is headquartered in Lake Charles, Louisiana. The company has a unique way of approaching the food delivery service market. They target smaller markets with between 50,000 and 70,000 people. This allows them to grow the company without going head-to-head with companies like Grubhub (GRUB).
But, just because Waitr is servicing smaller markets, does not mean the addressable market is small. As CEO Meaux stated, “We’ve identified over 200 markets just in the 11 states that we service today. The key to a good market isn’t a large population, but the old economics’ basic of supply and demand.”
The company has identified over 1,000 markets across the U.S where Waitr would be a good fit for the local population. These include locations like Birmingham, Alabama and Athens, Georgia.
The Waitr App
Given there is a market for the service, which there clearly appears to be for Waitr, let’s take a look at the product that Waitr provides. A quick check on the app stores for both Google and Apple shows the Waitr app is a hit. With almost 6,000 reviews on the Google store the company has just over a 4 star rating. Grubhub has similar positive reviews. The Apple app store gives Waitr 4 stars with just over 2,000 reviews.
Unlike its competitors, Waitr provides a concierge like service to restaurants that come on board its platform. The company photographs the restaurant and the menu so customers get a feel for the place they are ordering from, not just a generic list of food items.
Waitr also provides the restaurant with software, a menu manager, so the restaurant can manage its own menu on the app. This allows for specials to be added or removed and the addition of “deals” to attract new customers.
The cost to a restaurant to sign up for the Waitr service is an upfront fee of $2,000, a little steep for some smaller customers, but then the ongoing fee, 15% of purchases, is much lower than its larger competitors charge. This is usually more in the 20-30% range for large companies like Grubhub.
As Meaux states, “That up-front fee is important to get the buy-in from the restaurant. They get enough orders to pay that up-front fee in two-to-three weeks. It’s an easy investment for them to make.”
Playing WTRHW
I believe there are several ways to play Waitr’s equity warrants, WTRHW. First, you can simply purchase the warrants as an investment. I believe the company will continue to grow in its target small market area, and is in a great position to benefit from an ever expanding sharing economy. The cash infusion from Lancadia should allow Waitr to expand more rapidly.
The stock, and warrants, traded down in the recent market turmoil at the end of 2018, but both have recovered recently. The long time period to expiration means an investor in the warrants can be patient. I believe there is a good chance that a larger competitor, such as Grubhub, eventually purchases Waitr and integrates it into their system.
The warrants provide a great way to play Waitr from a leverage standpoint. If the stock were to move from its current $11.75 to around $14, a 19% move, the warrant would most likely move to around $3.25, a 116% gain. That would reduce the premium in the warrant from the current $1.25 to about $.75.
If you’re a more active trader, Waitr common stock, WTRH, is shortable and a hedge could be put in place and traded around. At these levels in the warrant I would generally hold the warrant position, and simply trade in and out of the common using the warrant as a hedge.
You could enter a percentage hedge in the common and then trade around that position fairly easily. Both the common and warrants have adequate volume to make this a profitable strategy. It’s likely you could get the cost of the warrants to near $0 by employing this strategy over a fairly short amount of time.
Either as a longer term holding or as a trading vehicle, WTRHW offers a great way to play the secular trend of the sharing economy. And, by employing a percentage hedge, you may be able to work into a low, or even no-cost investment.