Wherever you happen to be sitting as you read this, if you're hungry, odds are Grubhub (GRUB) can bring you what you're craving. The problem, unfortunately for investors in it, is that there are a whole lot of other companies that can do the same thing. Grubhub's third-quarter revenue growth was weak, its outlook was worse, and its shareholders were heading for the exits. In this segment of the Nov. 1 Motley Fool Money podcast, host Chris Hill and Motley Fool senior analysts Andy Cross, and Ron Gross reflect on the business model, the core problems the meal-delivery giant faces as it invests in even more growth, and its perception issues.
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This video was recorded on Nov. 1, 2019.
Chris Hill: Disastrous week for Grubhub. Third quarter sales were weak. Guidance for the fourth quarter was terrible. Shares of Grubhub fell 45%, Andy. It's at a three-year low.
Andy Cross: Yeah, really tough quarter. Average daily grubs grew 10%. That's basically the orders they have. That's much lower than the expected numbers from both the company and also from analysts. Total costs and expenses for the quarter up 41%, and up 50% for the first nine months of this year, vs. revenues up 30%.
The real story here is the concern about the marketplace and the competitive pressures that Grubhub is facing. They said that the pressures from some of the other players, like DoorDash or Uber Eats, maybe Postmates, the pressure that they are putting on to the entire space lowered some of the diner growth rates by up to 300 basis points or 30% of the growth rate. When you look at the environment and the costs that Grubhub has to continue to put into the business, to expand their networks and add more diners, it just is really starting to add up, and we're not seeing it yet. We've seen this deceleration in the number of diners and restaurants that they're going to be able to add onto the platform.
Hill: I've said this before and I'll say it again, winning cures everything. If you're doing great, and your business is doing great, and your stock's going up, you can come up with all the cute names like average daily grubs you want. When your stock drops 45% in a week, nobody wants to hear that.
Ron Gross: Stop being cute!
Hill: And the CEO, whether he meant to be joking or not, talking about how online diners are becoming more promiscuous? Like, don't go for humor, your stock's down 45%.
Cross: Matt Maloney, the CEO and founder, he actually put out a 10-page letter for the first time to shareholders trying to explain the market. Now, whether it is going to turn the stock in the right direction or not remains to be seen. But clearly, the market itself is seeing some real pressures.