Shares (GRUB) are being hurt at the end of trading on Monday, after the food delivery company posted lower-than-expected third-quarter revenue – and more disturbingly – fourth-quarter guidelines, which were dramatically below Wall Street expectations.
The report comes amid a period of intensifying competition in the food delivery industry as companies such as
(UBER) Uber Eats, DoorDash and Postmates spend a lot to expand their position in the business. Postmates earlier this month postponed a planned IPO, citing market conditions.
In the quarter, Grubhub earned $ 322 million, up 30 percent from a year earlier, but below analyst consensus forecasts of $ 330.5 million. Non-GAAP earnings were 27 cents per share, according to estimates. Gross food sales were $ 1.4 billion, an increase of 15%. “Active customers” were 21.2 million, an increase of 29% over the previous year, while “daily active groups” were 457,000, an increase of 10%.
For the fourth quarter, Grubhub projects revenue of $ 315 million to $ 335 million, below Street's former consensus of $ 387.3 million. The company sees an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, a measure of cash flow) of $ 15 million to $ 25 million, well below the $ 53.8 million reported in the third quarter.
In a brutally straight 16-page letter to shareholders, Grubhub discussed how its business is being affected by the changing dynamics in the food delivery industry. For starters, the company noted that the 10% increase in daily active customers "was at the lower limit of our expectations," adding "we suspect it is also at the lower limit of their expectations."
In the letter, Grub Hub writes that the trend accelerated from August.
"As we searched the data, we saw that our younger customers, especially those in our newer markets, were not placing as many orders as we expected at that time in their life cycle," the company wrote in the letter. “While retention from these newer customers was good, ordering frequency was not & # 39; maturing & # 39; at the same level as previous cohorts … At the same time, we also observed that the retention rates, not just the attendance rates, of our newer clients (acquired at the end of the second quarter) were slightly lower than those previous groups. "
Grubhub writes that he has studied the situation and concluded that “innovations in online shopping have been realized and annual growth is slowing and returning to a more normal state in the long run, which we believe will be set in the low double digits, except that There are several players competing for the same new customers and asking for growth. "
In short, the company is being hampered by a competitively saturated market.
"We believe online customers are becoming more promiscuous," the company said. “For years, we saw in our data that a Grubhub restaurant was extremely loyal to our platform. However, our newest customers are increasingly requesting a competing online platform, and our current customers are increasingly requesting multiple platforms. "
And Grubhub added, "This is a significant change in our industry that will require us and everyone else to compete, creating the most value for diners and restaurants, rather than relying on industry high winds."
The company issued a stern warning about the short-term impact of all this on its business.
“While our competitors continue to spend aggressively, swallowing huge losses in the process, we need to give new customers more reason to try Grubhub, prevent our current customers from looking elsewhere, and continue to grow our customer base to ensure we are better positioned when industry matures and reaches a stable level of long-term spending. ”Grubhub says,“ It will be moving fast, spending more and trying many different strategies over the next 12 to 18 months to aggressively increase restaurant offerings, while making our experience stickier – effectively taking action to remove any reason for customers. look anywhere else. ”
Although the company did not provide detailed guidance for 2020, it has projected adjusted EBITDA of at least $ 100 million.
Grubhub's after-hours trading fell 32% to $ 39.95.
Write to Eric J. Savitz at firstname.lastname@example.org