Intensifying competition is taking a toll on GrubHub (NYSE:GRUB).

The food delivery company's shares lost more than 40% of their value on Tuesday after third-quarter results and forward guidance stunned investors. Worse still, analysts say more trouble lies ahead.

A downwardly sloping line chart

GrubHub's stock plunged following its Q3 report. Image source: Getty Images.

GrubHub's third-quarter revenue jumped 30% year over year to $322 million. The number of diners actively using GrubHub's platform leapt 29% to 21.2 million. "Our teams had another strong quarter of execution, adding nearly 1 million active diners and 15,000 restaurants to our platform," founder and CEO Matt Maloney said in a press release. 

GrubHub's revenue, however, was below Wall Street's estimates. Analysts had expected the company to deliver revenue of $330.5 million. 

Moreover, GrubHub's profitability weakened significantly. The company's non-GAAP (adjusted) net income fell more than 40% to $24.7 million, or $0.27 per share. 

Management said the decline was due in part to increased growth investments. "Last year, in the fourth quarter, we made opportunistic investments to expand delivery market coverage, increase new diner advertising, and accelerate our enterprise brand sales efforts," CFO Adam DeWitt said. 

GrubHub says these investments should be viewed in the context of a takeout food market that's estimated at more $200 billion annually in the U.S. alone. The company is spending money now to increase its market share and position itself for future growth.

Growing competition

Still, GrubHub also said the delivery industry is becoming more competitive. Notable rivals include Uber Eats, DoorDash, and Postmates. "There are multiple players all competing for the same new diners and order growth," Maloney and DeWitt said in a shareholder letter.

This, in turn, is giving diners more alternatives to choose among. And people are increasingly switching among food delivery companies. "We believe online diners are becoming more promiscuous," as Maloney and DeWitt put it. 

These competitive dynamics are weighing on GrubHub's growth. "The easy wins in the market are disappearing a little more quickly than we thought," the executives said. 

Guidance falls short

Based on these trends, GrubHub issued fourth-quarter guidance that was substantially below analysts' expectations. The company is guiding for Q4 revenue of $315 million to $335 million, while analysts had expected $387.5 million. 

Several analysts responded by downgrading GrubHub's shares and slashing their price targets. Oppenheimer analyst Jason Helfstein went so far as to say that GrubHub will probably need to merge with another competitor or put itself up for sale. 

Judging by the stock's brutal decline on Tuesday, investors are much more concerned about GrubHub's future following the company's announcements. With its growth slowing and its customer loyalty now in question, shareholders have valid reasons to be worried.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.