Why Shares of Grubhub Got Slammed Today?
Oct 29, 2019 by InvestorDestination Team
Today at the opening bell, shares of Grubhub (NYSE: GRUB) fell more than 40% after the company announced its 3rd quarter results. In the 3rd quarter, the company grew its revenue by 30%, but its profitability declined. The company lowered its full-year revenue guidance from $1.34- $1.39 billion to $1.286-$1.306 billion.
The intense competition is applying a break on Grubhub's growth and gobbling up the company's profitability.
| Q3 2019 | Q3 2018 | Growth | |
|---|---|---|---|
| Revenue (in millions) | $322.1 | $247.2 | 30% |
| GAAP Net income (in millions) | $1 | $22.6 | (96%) |
| GAAP EPS (diluted) | $0.01 | $0.24 | (96%) |
Now let us look at its financial performances in 2019 Vs. 2018.
| 2019 Revenue Growth | 2018 Revenue Growth | 2019 EPS Growth | 2018 EPS Growth | |
|---|---|---|---|---|
| Q4 | - | 40% | - | (110%) |
| Q3 | 30% | 52% | (96%) | 60% |
| Q2 | 36% | 51% | (97%) | 94% |
| Q1 | 39% | 49% | (76%) | 70% |
In a platform model, codependency between producers and consumers increases switching costs for both, and creates a competitive advantage for platform providers like Grubhub. GrubHub, with its first-mover advantage, should have kept competitors at bay. However, the restaurant business is a highly competitive, low margin, fragmented industry with a low switching cost. Home delivery service for restaurants can't be a high margin business. Since the restaurant business is fragmented, home delivery service providers can't easily replicate success in one geographic region to another. The barrier to entry for home delivery service is low, which has resulted in increased competition for Grubhub. As Uber Eats and DoorDash are picking up market share, investors' enthusiasm for this company is on the decline. However, the company's market valuation is still high, so it is better to watch from the sideline.
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