Despite the business posting expectation-topping third-quarter results, shares of the food delivery company Grubhub (NYSE:GRUB) fell as much as 18% in early-morning trading on Thursday. Shares were down about 9% as of 10:53 a.m. EDT.
Here's a review of the key numbers from the company's third quarter:
- Revenue increased 52% to $247.2 million. By contrast, analysts were only expecting $239 million in revenue.
- On a non-GAAP basis, net income grew 72% to $42.2 million, or $0.45 per share. That number also compares favorably to the $0.41 in earnings that Wall Street was expecting.
- The number of active diners on the platform grew 67% to 16.4 million.
- Users ordered an average of 416,000 deliveries per day, which was up 37% year over year.
- Total food sales were $1.2 billion during the period. That figure rose 40% when compared to the same time last year.
Turning to guidance, here's what management is projecting will happen in the upcoming quarter:
- Revenue is expected to land between $283 million and $293 million. By contrast, Wall Street was only expecting $272 million in total revenue.
- Adjusted EBIDTA is expected to land between $40 million and $50 million.
So if the results were solid and guidance was good, what can explain today's sell-off?
It is possible that this quote from Grubhub CFO Adam DeWitt can explain the decline:
We are opportunistically investing an incremental $20–$30 million in marketing and delivery expansion in the fourth quarter, taking our total 2018 investment in growth to substantially more than $200 million. The 200 total delivery markets we will launch in 2018 plus accelerated diner growth put us in a great position to capture takeout orders as they move online.
Another possibility is that this is just normal market noise, since several high-multiple stocks have been selling off recently.
Short-term price movements aside, I think it is clear that Grubhub is doing a great job at executing against its huge market opportunity. I also applaud management's decision to keep its foot on the gas to open up even more markets and drive future growth.
In total, I see plenty of reasons for bulls to remain optimistic. With the share price currently on sale, it might not be a bad time for forward-thinking investors to consider opening up a position.