Nope. Turns out Grubhub (NYSE:GRUB) didn't have any drive left in the third quarter. The online meal delivery specialist met earnings estimates, but missed analyst revenue expectations. Its stock plunged nearly 40% in morning trading because its outlook for the fourth quarter fell well short of what Wall Street was anticipating.

Telling investors, "the easy wins in the market are disappearing a little more quickly than we thought," CEO Matt Maloney and CFO Adam DeWitt did nothing to instill any confidence that Grubhub knows how to dig its way out of the hole in which finds itself. Guidance that indicates Grubhub will generate little to no growth during the coming quarter does not show the company being "ideally positioned" to win the day.

Red food delivery bicycle.

Image source: Getty Images.

Subverting expectations

It was a fairly brutal quarter for Grubhub. Revenue rose 30% year over year to $322 million, but analysts had been expecting $330 million, and the 10% gain in daily average grubs, or its number of active customers, was less than predicted. The executives offered, "We suspect it may be at the lower end of your expectations as well."

Grubhub decided to get out in front of the lackluster report, knowing it was going to be poorly received, by issuing a letter to shareholders that accompanied its earnings announcement. The company said it will continue the format of offering spin on its results ahead of talking to analysts going forward, but this quarter, the letter was going to be much more extensive because there was so much to discuss. Management felt shareholders needed to understand how the industry is evolving.

The short answer seems to be, "it's basically the customers' fault." Maloney and DeWitt said customers were becoming more "promiscuous," easily flipping between delivery services based upon their meal choices. Data analytics firm Second Measure had already noticed the lack of loyalty consumers were exhibiting, saying a review of anonymized credit card data indicated about one-fourth of all food delivery customers used more than one service when ordering in the third quarter.

While Grubhub gains when it notches exclusive partnerships like the one it has with Yum! Brands' Taco Bell and KFC restaurants, and it benefited from the promiscuity of McDonald's customers when the latter ended its exclusivity rights with Uber Eats and signed Grubhub on too, when the roles are reversed -- and that's becoming more common -- it hits hard.

Loyalty is lacking

Beginning in August, Grubhub saw its newest diners weren't driving as many orders as expected, and their order frequency was also below what the service had previously experienced. It only got worse as time went on, and now even its previously most loyal customers were more than willing to play the field.

"Our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms," Maloney and DeWitt wrote. The result was a 300-basis-point impact on Grubhub's growth rate in the third quarter.

Grubhub says to staunch the hemorrhaging, it will be throwing a lot of initiatives at the wall over the next year or so and seeing what sticks, even going so far as to list restaurants on its sites that it hasn't officially partnered with because it's a cheap and easy thing to do.

The food delivery service believes taking that route ultimately undermines the industry even as it gives consumers a more full picture of what's available, but because Grubhub is at risk of being diluted by the influx of competition -- some of which is growing quickly like DoorDash -- it's willing to take the easy out.

A disturbing choice

That sounds like a warning sign investors should take note of. At the same time Grubhub is adding nonpartner names, it also said it will cut back on its marketing. It seems willing to hurt itself to make the short-term numbers look better, even though any benefit it achieves likely will take several years to materialize.

Coupled with a rather dismal fourth-quarter forecast, this means investors shouldn't look at Grubhub's tanking stock as a buying opportunity but rather as a red flag signaling them to stay away.

Editor's note: This article has been updated to note that data from Second Measure was for the third quarter of 2019 and include new calculations indicating the number of customers using multiple food delivery services during the period had increased since the original reporting.