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Grubhub (GRUB) Q3 Earnings Meet, Shares Fall on Grim Q4 View

Zacks Equity Research

Grubhub GRUB shares plunged 43.3% to close at $33.11 on Oct 29, following dismal third-quarter 2019 results. The company provided weak fourth-quarter guidance citing lower order expectations amid intensifying competition in the online food delivery industry.

The company reported third-quarter 2019 earnings of 27 cents per share, which was in line with the Zacks Consensus Estimate. However, the bottom line slumped 40% on a year-over-year basis.

The decline can be attributed to higher investments in marketing and advertisements that fully offset strong top-line growth.

Revenues surged 30.3% year over year to $322.1 million, which lagged the consensus mark of $330 million.

Capture rate, net revenues divided by gross food sales, was 23% and included nearly 110 bps of technology-oriented revenues from LevelUp and Tapingo.

However, Grubhub stated that stiff competition and lower frequency as well as retention rates of new diners hurt overall results by more than 300 basis points (bps).
 

Grubhub Inc. Price, Consensus and EPS Surprise

Grubhub Inc. Price, Consensus and EPS Surprise

Grubhub Inc. price-consensus-eps-surprise-chart | Grubhub Inc. Quote

 

Operating Details

Total costs & expenses jumped 41.3% year over year to $318.5 million. Operations & support, sales & marketing, technology, and general & administrative expenses increased 44.7%, 44.9%, 38.7% and 14.1%, respectively.

Revenues excluding operations and support costs were $3.82 per order, up from $3.66 in the previous quarter. Cost per gross new diner declined sequentially in the reported quarter.

Adjusted EBITDA decreased 10.5% from the year-ago quarter to $53.8 million. Adjusted EBITDA per order was $1.28, up from 98 cents in the previous quarter.

Gross Food Sales & Active Diners Increase

Gross food sales rose 15% year over year to $1.4 billion. Average order size increased 5% to about $33.

Active diners were 21.2 million, up 29% year over year. The company added 900,000 net new active diners sequentially. Roughly 40% of new diners came from its newest markets, 25% from markets that the company is operating since 2012 and the rest came from the oldest markets.

Daily Average Grubs (DAGs) were 457,300, up 10% year over year. Sequentially, DAGs declined 6%.

Orders delivered on behalf of restaurant partners accounted for nearly 35% of Grubhub’s DAGs in the reported quarter.

Grubhub now has more than 140,000 partner restaurants on its platform. Moreover, there are nearly 300 enterprise brands available, with nearly 45,000 enterprise locations live on the company’s marketplace.

During the reported quarter, Grubhub added 15,000 net new partnered restaurants. Almost 35% of restaurant additions were in the company’s oldest markets. Moreover, 25% were in markets where Grubhub is operating since 2012 and the rest in newer markets. The company added thousands of enterprise brand locations during the quarter.

During the reported quarter, Grubhub expanded coverage with brands like Applebee’s, Dunkin’, IHOP, KFC, McDonald’s, Panera Bread, Shake Shack, Subway, Taco Bell and Wendy’s.

Guidance

For fourth-quarter 2019, GrubHub forecasts revenues between $315 million and $335 million. The Zacks Consensus Estimate is currently pegged at $387.7 million, indicating year-over-year growth of 34.8% from the figure reported in the year-ago quarter.

Adjusted EBITDA is anticipated to be $15-$25 million.

Management expects a sequential increase in sales and marketing costs in the fourth quarter. However, lower advertising spending is expected to reduce sales and marketing costs on a year-over-year basis.

Zacks Rank & Stocks to Consider

GrubHub currently has a Zacks Rank #3 (Hold).

Alteryx AYX, Digital Turbine APPS and Brooks Automation BRKS are some better-ranked stocks in the broader computer and technology sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Alteryx is set to report quarterly results on Oct 31, Digital Turbine and Brooks Automation are scheduled to report on Nov 4 and 6, respectively.

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