Grubhub (GRUB +0.00%) lost about 30% of its value over the past 12 months as its growth slowed, its expenses surged, and its profits turned into losses. It lost its crown as the top food delivery platform in America to DoorDash, and it struggled to present any viable turnaround plans for its core business.
Grubhub's mixed fourth-quarter earnings report indicated that that pain would likely continue. Its revenue grew 19% annually to $287.7 million, which beat estimates by $16.6 million but marked its fifth straight quarter of decelerating growth.
On a GAAP basis, it posted a net loss of $27.7 million, compared to its loss of $5.2 million a year earlier. On a non-GAAP basis, it reported a net loss of $4.2 million, down from a profit of $17.6 million in the prior-year quarter. That translated to a net loss of $0.05 per share, which missed estimates by two cents.
Grubhub's adjusted EBITDA, which it often refers to as a clearer metric of its earnings growth, fell 37% annually to $26.7 million. Those headline numbers look terrible -- but Grubhub's stock didn't fall off a cliff after the report. Let's dig deeper to see if this battered stock is finally bottoming out.
Image source: Grubhub.
Its decelerating growth clears a low bar
Grubhub reports its growth with three main metrics: daily average grubs (meals), active diners, and gross food sales. All three growth rates decelerated during the fourth quarter:
|
YOY growth |
Q4 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
Q4 2019 |
|---|---|---|---|---|---|
|
Daily Average Grubs |
19%* |
19% |
16% |
10% |
8% |
|
Active Diners |
22% |
28% |
30% |
29% |
28% |
|
Gross Food Sales |
21% |
21% |
20% |
15% |
13% |
|
Revenue |
40% |
39% |
36% |
30% |
19% |
|
Adjusted EBITDA |
(26%) |
(21%) |
(19%) |
(10%) |
(37%) |
YOY = Year-over-year. Source: Source: Grubhub quarterly reports. *22% excluding Eat24 from both periods.
However, analysts had only expected Grubhub's daily average grubs and active diners to grow 3% and 25%, respectively. Beating those estimates fueled its top-line beat.
Image source: Grubhub.
Grubhub attributed those better-than-expected results to the growth of its restaurant inventory, which more than doubled over the past three months to about 300,000, as well as its addition of nearly 15,000 partnered restaurants. It also added "record numbers of new, independent, and small chain locations" in each market tier.
Big fast food chains also boosted Grubhub's growth. Its partnership with Yum! Brands attracted diners with KFC and Taco Bell deliveries, and it's been adding more Wendy's locations to its marketplace, expanding into new markets with Shake Shack, and running a pilot program with McDonald's, which ended its exclusive partnership with Uber (UBER +1.24%) Eats last year.
To lock in smaller businesses, Grubhub recently launched "Ultimate," an end-to-end system that bundles in-store kiosks, kitchen displays, point of sale systems, and loyalty platforms with its mobile app. Ultimate lets customers pick up their own orders instead of relying on couriers -- which could cut costs and increase the stickiness of its digital ecosystem.
But Grubhub still faces tough headwinds
That progress is promising, but Grubhub still expects its slowdown to continue with just 8%-11% annual revenue growth in the first quarter and 8%-15% growth in fiscal 2020, compared to its 30% growth in 2019.
Grubhub also expects to continue challenging DoorDash and Uber Eats with promotions, free deliveries, and investments in its ecosystem, which will all inevitably throttle its earnings growth. As a result, it expects its adjusted EBITDA to slide 51%-71% annually in the first quarter and to decline up to 46% in 2020. Analysts had expected milder EBITDA declines of 37% for the first quarter and 36% for the full year.
That big bottom-line miss indicates that Grubhub will continue to struggle against DoorDash, which can afford to take losses because it's backed by venture capital, and Uber, which can even out the losses between its ride-hailing and food delivery divisions.
The key takeaway
Grubhub was once a great growth stock, but it clearly lost its mojo as aggressive competitors entered the market. Grubhub's stock might look cheap at about three times next year's sales (and it could still be a lucrative takeover target), but it arguably deserves that discount. It might eventually turn a corner, but its fourth-quarter numbers and guidance suggest that it's too early to call a bottom.
