Please ensure Javascript is enabled for purposes of website accessibility

Jim Chanos Bets Against Grubhub

By Timothy Green – Sep 19, 2019 at 2:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The famous short-seller doesn’t like the food delivery company.

Jim Chanos made a name for himself betting that Enron would collapse in the early 2000s. Now the short-seller is betting against Grubhub (GRUB), a leading restaurant delivery company whose stock has already been battered over the past year. The stock had shed about 5.1% by 1:10 p.m. EDT Thursday.

Chanos revealed his short position on CNBC's Halftime Report on Thursday. He believes that a combination of lower fees and higher employee costs will become a massive problem for Grubhub in the future.

As it stands, Grubhub barely makes any money. "Right now, Grubhub is making almost no money per order -- it's something like 15 cents. There's just no margin in this business," Chanos said. The situation is expected to get worse, as pressure from both competition and new labor laws eat into the company's paltry bottom line.

A woman's hands holding a smartphone while looking at the Grubhub mobile app.

Image source: Grubhub.

Competition from Uber is a huge problem, according to Chanos, because Grubhub doesn't have the resources to be as aggressive as the ride-hailing company. Chanos likened competed with Uber to being "locked in a cage with a psychopath with an ax."

Chanos also pointed out that the restaurant business itself is tough and essentially stagnant, which raises questions about the long-term growth of the delivery business.

Grubhub's profitability has already been trending downward, with adjusted EBITDA down 19% in the second quarter. Chanos isn't the only one concerned about Grubhub's business model -- the stock has tumbled nearly 60% since peaking in late 2018 as investors reassessed the company's growth prospects.

If Chanos is right, the pain for Grubhub investors could get much worse.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Grubhub and Uber Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GrubHub Inc. Stock Quote
GrubHub Inc.
GRUB

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.