GrubHub (NYSE:GRUB) operates in a space where seemingly every big player has at least dabbled. If a company delivers anything, or has a fleet of vehicles working on its behalf, you can be sure that it has at least examined the idea of adding restaurant delivery to its mix. That has contributed to investor concerns over GrubHub's long-term potential, but it's short-term stock drop in January may be attributable to something else entirely -- warm weather in its key markets.
What: According to William Blair analyst Ralph Schackar, and reported in Barron's, New York and Chicago represent about half of the customers served by the restaurant-delivery service. Both of those markets have had spectacular weather in January, with almost none of the snow that usually accumulates. Even the big storm that hit New York was not good news for GrubHub; it was so large, it closed down the city.
"As GrubHub has stated in the past, the company sees higher order frequency when it is cold, rainy, or snowy," wrote Schackart. "And while difficult to quantify the precise impact, the better-than-average weather in its top two markets will present headwinds this quarter, in our view."
That explains, at least in part, why the company's stock opened in January at $23.50, and closed at month's end at $18.85, a nearly 20% drop, according to S&P Capital IQ Data.
So what: Unseasonably nice weather is likely to be a temporary problem for the company, but investors should still be wary about possible competitors trying to break into restaurant delivery. GrubHub acted aggressively to close January, announcing a $100 million stock buyback plan, as well as a new $200 million credit facility; but none of that changes its underlying vulnerability.
Now what: If you believe in GrubHub, then a soft January, at least in part due to mostly beautiful weather in New York and Chicago, does not change any of the company's underlying fundamentals. In fact, with the company steadily expanding and already announcing plans to move into San Francisco, it should eventually, through growth, minimize the impact of any one market on its business.
It looks like January was a setback for the company, and probably affected its Q4 earnings -- which were reported on Feb. 4. However, it's one that the company can easily recover from going forward.