Shares of food delivery company GrubHub collapsed over 40% after reporting dismal earnings and lowered guidance before the market led analysts to agressively downgrade $GRUB. Competition from Uber, Doordash and Postmates is eating marketshare.
Shares of food delivery company GrubHub collapsed over 40% after reporting dismal earnings and lowered guidance before the market led analysts to agressively downgrade $GRUB. Competition from Uber, Doordash and Postmates is eating market share.
GrubHub Inc Q3 Earnings
GrubHub NYSE: GRUB Reported Earnings Before Open Tuesday
$0.82 Beat $0.78 EPS Forecast And $7.76 Billion Missed $7.92 Bil Revenue Forecast
GrubHub reported third-quarter earnings in line with expectations at 27 cents per share but revenue of $322 million missed estimates of $330.5 million, according to Refinitiv. The company spent heavily on promotions to gain market share. The stock aggressively sold off after the company’s fourth-quarter guidance that wrecked analysts hopes about the rest of the year.
Market Summary > GrubHub Inc NYSE: GRUB
Market Reaction $33.11 USD −25.28 (-43.30%) Close Oct 29, 4:00 PM EDT
- Orders decreased 15% since the same period last year, dropping further from its second-quarter decrease of 11%.
- GrubHub estimates the total addressable market at $200 billion. There has been a considerable rise in online food sales due to the ease of ordering and diverse choices for consumers.
- The company added 15,000 new partner restaurants and 900,000 active diners in the third quarter.
- However, DoorDash is gaining significant traction in the food delivery space. The segment is becoming increasingly crowded. Amazon Restaurants had to withdraw from the race a few months ago.
$GRUB’s fourth-quarter guidance for revenue is now seen by the company in a range of $315 million to $335 million, well below the forecast $388 million. Management noted weaker order frequency as the company fails to mature like its rivals.
GrubHub will focus on adding nonpartner restaurants, expanded national chain integration and diner promotions.
“We will be moving quickly, spending more and trying many different strategies over the next 12-18 months to increase restaurant supply aggressively while making our diner experience more sticky – effectively taking action to remove any reason for diners to look anywhere else,” the company’s CEO, Matt Maloney, said in a note to shareholders Monday.
GrubHub got five downgrades including double downgrades from both Bank of America Merrill Lynch and Oppenheimer.
Oppenheimer analyst Jason Helfstein slashed his price target on the stock to $34 from $91.
“Competitive food delivery offerings (Uber, Doordash and others) are eroding GRUB usage and expected to worsen in 4Q, suggesting historical [long tern value] is no longer reliable,” Management noted weaker order frequency as the company fails to mature like its rivals.
“We think this will accelerate industry consolidation, but GRUB has a weaker currency than the two largest players and we see limited investor demand with slowing growth and declining EBITDA,”
Bank of America analyst Nat Schindler
“The food delivery market is increasingly irrational as competitors flood the market with rewards and incentives, making online diners less loyal,”
Guggenheim Securities downgraded GrubHub from a “Buy” rating to a “Neutral” rating
Gordon Haskett changed the rating for GrubHub from Buy to Hold.
Craig-Hallum changed the rating for GrubHub from Buy to Hold.
Analyst Alex Fuhrman from Craig-Hallum also downgraded the stock to “hold” from “buy” and revised its target price from $100 to $40, according to another report from The Fly. According to the report, Fuhrman’s research note said, “New diner performance began to drop off in August, causing soft Q3 results at the low end of guidance, while the continued weakness led to significantly lower Q4 revenue and EBITDA guidance.”
The Food Delivery Market in America
In a report by Kathryn Roethel Rieck for Second Measure last week on the food delivery business it was clear GrubHub has issues.
DoorDash earned 34 percent of U.S. consumers’ meal delivery sales last month, while Grubhub and its subsidiaries, which include Seamless and Eat24, took in 30 percent. (Purchases made through Tapingo and LevelUp, which Grubhub acquired in late 2018, are not included in our analysis.) DoorDash’s sales overtook Uber Eats’ in October 2018, and Uber Eats earned 20 percent of U.S. meal delivery spending in September 2019
(From May through August 2019, some Uber Eats purchases became indistinguishable from Uber rides purchases, so Uber Eats’ sales and market share appeared artificially low during that time.)
The difficulty of the space was highlighted by Amazon Restaurants, which had around half a percent of U.S. market share in May, announced in June that it was shutting its doors for good.
Caviar earned just 3% of U.S. sales in July, its final month before the DoorDash acquisition announcement.
Postmates filed for an IPO in February raising $225 million, but CEO Bastian Lehmann recently declined to say when the company would move forward with its IPO, citing “choppy” market conditions. Postmates currently earns 10 percent of the U.S. meal delivery market.
DoorDash’s growth was 114% year-over-year In May, DoorDash announced raising $600 million in its fourth funding round in 14 months,with IPO rumors gathering steam.
In September, sales for the industry as a whole rose 40% year-over-year. In fact, 25 percent of Americans have ordered from one of the main services up from 19 percent a year ago.
Grubhub and DoorDash success is regionally based. The top two food delivery services may be close in U.S. market share, but their strongholds are in different regions. Grubhub is the most popular service in many Northeastern metro areas, including New York, Boston, and Philadelphia. DoorDash rakes in more than half the sales in the two biggest Texas metros, Dallas-Fort Worth and Houston.