Here is a stock of Software as a Service that I just purchased

There have been some disruptive inventory when it comes to online restaurant orders, but Olo (NYSE: OLO) takes a somewhat different approach. In this fool live Video clip, recorded September 16, contributor Brian Feroldi explains why he recently bought the shares in his portfolio.

Brian Feroldi: The last stock I bought was a company called Olo, which is the stock symbol OLO. I don’t know if you are familiar with this company. But Olo, shortcut for online ordering. This is a business that focuses on the laser to help customers make restaurants on demand delivery to their customers.

Now if you think, “Wait, don’t we already have that. Ain’t that called DoorDash (NYSE: DASH), and Grubhub (NASDAQ: GRUB), and ON24 (NYSE: ONTF) and many other businesses that focus on that? ”The answer is yes. However, online ordering or Olo attacks it from a totally different angle. Imagine you are a restaurant and want to offer online ordering. to your customers. An option, an option that many choose to go with DoorDash because they have the customers. The customers are on DoorDash and they want to buy, have that food and have it delivered.

Well, if you’ve read anything about the industry, DoorDash charges a pretty huge fee to get that food to the customer. More importantly, while the restaurant provides the food, they are only a middleman, they are only a supplier. The actual customer belongs to DoorDash. For this reason, a whole bunch of restaurants want to take the ability to order online in-house. They want to own the consumer experience and Olo allows them to do so.

It is a software as a service business company that does on-demand online foodservice business for multi-site restaurants. Olo is super focused on corporate restaurants. Some of their clients, you may have heard of; Five guys, Shake Shack (NYSE: SHAK), Chili’s, Applebee’s, Cheesecake Factory (NASDAQ: CAKE), Peet’s Coffee, Jamba Juice, etc. One thing that I really like about Olo is that the way this company goes to market is that it takes on big companies and sells through their head office. .

A lot of these companies, which I just mentioned, are franchises and selling through head office, once the head office signs up and the data is online, your service is delivered to all sites in the world. business with essentially a single transaction. For this reason, this business spends very little money on sales and marketing. To give you an idea, last quarter the company generated $ 35 million in revenue, including $ 28 million in gross profit, so the gross margin of the company is around 80%, and it only spent 3 , $ 7 million in sales and marketing.

Now I follow a lot of SaaS companies and applaud when a company spends less than 50% of its gross margin on sales and marketing. This business spends only about 10% on sales and marketing. A lot of that is because their strategy is to go to the big restaurant chains, focus on the top and send that down. Today, the total number of restaurants in the United States that use this service has increased by only 30% to more than 74,000 locations. Once a restaurant is set up with Olo’s offering, it’s an extremely sticky platform. The gross retention rate is around 98% -99%.

Basically, once a customer uses it, they use it. In the last quarter, the company’s net dollar income retention rate was 120%. Not only do they do a great job listing new restaurants and keeping restaurants, but the ones they keep are spending more each year. In the last quarter, the revenue growth for this company was truly exceptional, 48% to around $ 36 million. The gross margin here is very strong at over 80% of turnover. This company is profitable non-GAAP net income. It’s already a profitable business and based on free cash flow they are even more profitable than that. After going public, the company has tons of cash, $ 575 million in cash. It is still managed by its founder. They have excellent Glassdoor ratings.

If you are convinced that the demand for online orders will continue to grow, there are several ways to play it. My favorite is definitely Olo, because he is super focused on helping restaurants to have a personalized relationship with the consumer. They don’t get around it with DoorDash. Now, this is the core business. But how does food actually get to the consumer? While there are several ways restaurants can do this, Olo offers it. The first is to employ their own drivers so that they can employ their own drivers in restaurants and do the delivery themselves and completely bypass DoorDash and Grubhub etc. However, the Olo platform also integrates directly with DoorDash and Grubhub.

A restaurant, if they wish, can use the Olo platform, their own website, their own app to take the order, place the order, get the order, etc., do it all on their own site. Web. Then, if he wishes, he can have it sent to DoorDash’s delivery network or to Grubhub’s delivery network in fact, to be delivered to the end consumer. This again allows them to keep control of the customer and choose which path they should take. I think this is an incredibly attractive proposition for restaurants.

On the other hand, there is a bit of customer concentration that investors need to watch out for, and this business’s growth is likely to be erratic. One of the downsides to selling through head office only is that what you see in any given quarter will have a really disproportionate effect on overall growth. I think it makes sense to look at this company’s numbers year over year, not necessarily on a quarterly basis compared to last quarter. But Olo is a company that ticks a ton of boxes for me, spoiler alert, it’s expensive but I think this company has a very bright future ahead of it. It’s Olo, stock symbol, OLO.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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