Grubhub Falls After Wall Street Flags Concerns Over Profitability

(Bloomberg) -- Grubhub Inc. fell the most intraday in three weeks after posting a wider-than-anticipated quarterly loss as the the food delivery company focuses on growing orders.

“Fourth quarter results show the company is prioritizing order volume at the expense of pricing to sustain order growth of over 20%,” Bloomberg Intelligence analyst Mandeep Singh said.

Grubhub has ramped up efforts to win consumers and keep them on the platform amid steep competition in the online food-delivery space. The company has also been teaming up with large chains, like Yum Brands Inc.’s KFC and Taco Bell.

Grubhub shares fell as much as 7.2% on Thursday, the stock’s biggest intraday loss since Jan. 10.

Here’s what analysts are saying:

Needham, Brad Erickson

“The company punted on updating its prior 2020 EBITDA commentary by reiterating ‘at least $100m’ which was the most important metric.”

The firm sees the stock likely remaining “fairly range-bound, given management’s current 2020 fundamental outlook implies a rich valuation backstopped by an M&A premium.”

“That the company did not update its 2020 Ebitda outlook may not change bullish investors’ minds who are looking for a 2020 Ebitda number closer to $200 million than $100 million.”

Has hold rating on the stock.

Jefferies, Brent Thill

“While the fundamental story remains under pressure, we think press speculation of M&A in the category puts a floor of $50 under the stock.” The firm said it would be more constructive on a pullback to the low $50s.

Management cited “slightly better-than-expected diner ordering behavior as a driver of better-than-expected revenue growth, but cautioned that newer diners are increasingly of lower quality.”

“With deep pocket competition fighting and spending to capture market share, GRUB will lean in on investments this year to maintain a market-leading presence.”

Has hold rating on the stock with a price target of $62.

BTIG, Peter Saleh

“We remain concerned about the strategy change announced last quarter and the trajectory of adjusted Ebitda per order.”

“Time will tell” if the company’s non-partnered restaurant strategy is the “appropriate model to drive profitability for delivery.” The firm noted the “considerably higher” cost these orders generate.

“The consumer will ultimately need to pay more for the convenience of delivery, and third-party providers including Grubhub will need to focus on getting more efficient with their marketing spend to compensate.”

Has neutral rating on the stock.

What Bloomberg Intelligence Says

“The addition of quick-service delivery restaurants on GrubHub’s platform is a drag on Ebitda margin, which could compress to mid-single-digits in 2020, in our view.”

--Analyst Mandeep Singh
--Click here for the research

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.