To be sure, essentially all of Grubhub's plunge last month came on Oct. 29, 2019 -- the first trading day after its quarterly update hit the wires.
But that's not to say Grubhub's quarter looked bad at first glance. Revenue grew an impressive 30% year over year to $322 million, fueled by a 29% increase in active diners, to 21.2 million, and a 15% rise in gross food sales to $1.4 billion. However, most analysts were modeling even higher revenue of $330.5 million.
That growth translated to adjusted net income of $24.7 million, or $0.27 per share, which technically met consensus estimates but was down sharply from $0.45 per share a year earlier.
Nonetheless, Grubhub founder and CEO Matt Maloney insisted the Q3 results marked "another strong quarter of execution," adding that the company is "entering the next phase of growth in the U.S. online food ordering industry where it is increasingly important to create a differentiated experience for diners and long-term value for restaurants."
In his quarterly letter to shareholders, Maloney wrote that the company is facing increasing competition in its niche, particularly as "diners are becoming more promiscuous" with other online delivery platforms.
"[T]he easy wins in the market are disappearing a little more quickly than we thought," he added. This is effectively forcing the company to invest more in free delivery and promotions for larger enterprise restaurant partners -- namely KFC, McDonald's, Panera Bread, and Taco Bell -- to help drive interest in the platform and (hopefully) attract new customers over the long term.
As such, Grubhub told investors to expect fourth-quarter revenue of $315 million to $335 million, marking a roughly $60 million reduction from its previous assumptions and far below Wall Street's models for sales closer to $387 million.
All things considered, Grubhub might well be taking the right steps to ensure its platform can survive and thrive despite rising competition in the coming years. But I also can't blame investors for taking their money and putting it to work elsewhere given Grubhub's relative underperformance in the meantime.