Shares of Grubhub (NYSE:GRUB) recently tumbled after the meal delivery company posted mixed second-quarter numbers. Its revenue rose 36% annually to $325 million, which beat expectations by $8 million but marked the company's third straight quarter of decelerating growth.

Grubhub's bottom-line numbers were even messier, with its net income plunging 96% to $1.3 million. On an adjusted basis, which excludes expenses from recent acquisitions, stock-based compensation, and other one-time charges, its net income still declined 46% to $25 million, or $0.27 per share, missing expectations by three cents. Its adjusted EBITDA declined 19% to $54.7 million.

Grubhub's bottom line declines weren't surprising since it repeatedly told investors that it would ramp up its spending on marketing, logistics, and the expansion of its digital ecosystem. However, Grubhub's growth is clearly slowing down as it faces tougher competition from rivals like DoorDash and Uber (NYSE:UBER) Eats.

Grubhub's mobile app.

Image source: Grubhub.

The key numbers

Grubhub measures its performance through such metrics as daily average grubs (meals), gross food sales, and active diners. All three figures are still climbing by double digits thanks to Grubhub's streak of acquisitions, but that momentum is gradually fading:

YOY growth

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Daily Average Grubs

35%

37%

19%*

19%

16%

Gross Food Sales

39%

40%

21%

21%

20%

Active Diners

70%

67%

22%

28%

30%

Revenue

51%

52%

40%

39%

36%

YOY = Year-over-year. Source: GrubHub quarterly reports. *22% excluding Eat24 from both periods.

Grubhub expects its revenue to rise 29%-38% annually in the third quarter and 34%-39% for the full year. That slowdown is problematic for two reasons.

First, Grubhub is running out of smaller platforms to acquire, since most of the U.S. market is split between itself, DoorDash, and Uber Eats. Second, DoorDash's market share surpassed Grubhub's earlier this year. DoorDash controlled 33.8% of the market in June, according to Second Measure, compared to 32.7% for Grubhub and a 16.7% for Uber Eats.

The impact of all that competition, along with Grubhub's rising expenses, caused its earnings growth to remain negative over the past three quarters.

Percentage change

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

GAAP net income

104%

75%

(110%)

(78%)

(96%)

Non-GAAP net income

99%

72%

(47%)

(41%)

(46%)

Adjusted EBITDA

61%

41%

(26%)

(21%)

(19%)

Note: Changes are year over year. Source: GrubHub quarterly reports.

The good news is that those declines are bottoming out. Grubhub expects its adjusted EBITDA to decline 0%-12% annually in the third quarter, and rise 1%-13% for the full year. That forecast indicates that the competition isn't forcing Grubhub into a death spiral of endless spending.

The potential catalysts

The bears might cite Second Measure's market share figures as evidence of Grubhub's decline. However, the firm's latest numbers also show that Grubhub and DoorDash's market shares both expanded in recent months even as Uber Eats' share declined. Grubhub also maintains comfortable leads in its four top markets -- New York City, Chicago, Philadelphia, and Boston.

A DoorDash delivery person is seen riding a moped to deliver a product.

Image source: DoorDash

Furthermore, Second Measure estimates that roughly a fifth of DoorDash's customers also use Grubhub and Uber Eats. Therefore, recent setbacks for those rivals -- including DoorDash's tipping debacle and the end of Uber Eats' exclusive contract with McDonald's -- could benefit Grubhub.

Grubhub's new deals -- including an exclusive partnership with Yum Brands, which grants it deliveries for KFC and Taco Bell, and a new delivery deal with Dunkin Brands' Dunkin' -- could also attract more users. Grubhub's expanding digital ecosystem, which includes LevelUp's payment and loyalty services, could also lock in more businesses.

There's also a small chance that Grubhub could be acquired. Amazon, which recently shuttered its first-party food delivery services in the U.S., is frequently cited as a potential suitor. Grubhub could also merge with the remaining players in the market -- including Postmates, which controls about 10.8% of the market -- to reclaim its crown from DoorDash.

Can Grubhub stage a comeback?

It's easy to see why investors aren't thrilled about Grubhub's prospects -- it faces stiff competition, decelerating growth, and higher spending for the foreseeable future. The stock also isn't cheap at over 30 times forward earnings.

I personally own a small position in Grubhub, but I'm neither selling nor adding more shares right now. If Grubhub meets or exceeds its guidance for the full year, I'll consider buying more shares. If it fails to hit those targets, I'll sell my entire position -- it would indicate that the company could soon become as unprofitable as DoorDash or Uber Eats in a race to the bottom.