Why Is GrubHub (GRUB) Down 14.9% Since Last Earnings Report?

A month has gone by since the last earnings report for GrubHub (GRUB). Shares have lost about 14.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GrubHub due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Grubhub Q2 Earnings Miss, Revenues Up Y/Y

Grubhub reported second-quarter 2019 earnings of 27 cents per share, which missed the Zacks Consensus Estimate by 3 cents. Moreover, the bottom line plunged 46% 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 35.6% year over year to $325.1 million, which beat the consensus mark of $318 million.

Total costs & expenses jumped 55.3% year over year to $318.9 million. Operations & support, sales & marketing, technology, and general & administrative expenses increased 58.5%, 60.3%, 57.1% and 41.8%, respectively.

Revenues per order less operations and support costs were $3.66, up from $3.46 in the previous quarter.

Adjusted EBITDA decreased 18.8% from the year-ago quarter to $54.7 million. Adjusted EBITDA per order was $1.23, up from $1.09 in the previous quarter.

Gross Food Sales & Active Diners Increase

Gross food sales rallied 20% year over year to $1.5 billion. Average order size increased 3.5% to about $33.

Active Diners were 20.3 million, up 30% year over year. Sequentially, the company added 1 million net active diners.

Daily Average Grubs (DAGs) were 488,900, up 16% 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.

Since April, number of partnered restaurants increased more than 10,000 to 125,000 in the Grubhub marketplace. Further, more than 35,000 enterprise restaurant locations are now live on the marketplace.

Moreover, during the reported quarter, the company added hundreds of new independent restaurants in New York City alone, which reflects growing adoption of its platform in this niche market.

During the reported quarter, Grubhub expanded coverage with brands like KFC, Duncan, Popeyes, Red Lobster, Bob Evans, Jack in the Box, Jersey Mike's, Doghouse, BJ's and The Halal Guys.

Guidance

For third-quarter 2019, GrubHub forecasts revenues between $320 million and $340 million. Adjusted EBITDA is anticipated to be $53-$60 million.

The company expects a sequential decline of DAGs in the third quarter and a strong rebound in the fourth.

Moreover, adjusted EBITDA per order is anticipated to be more than $1.50 in the fourth quarter of 2019 due to increased efficiency in the delivery markets.

For 2019, GrubHub revised revenue guidance, which is now expected between $1.340 billion and $1.390 billion compared with the previous guidance of $1.315-$1.415 billion. Adjusted EBITDA is expected to be $235-$250 million compared with the previous guidance of $235-$265 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -30.29% due to these changes.

VGM Scores

At this time, GrubHub has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, GrubHub has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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