(GRUB) shares are getting battered in late trading Monday, after the food delivery company posted lighter-than-expected Q3 revenues — and more disturbingly — Q4 guidance that was dramatically below Wall Street’s expectations.
The report comes amid a period of intensifying competition in the food delivery business, as companies like
(UBER) Uber Eats, DoorDash and Postmates spend heavily to expand their position in the business. Postmates earlier this month postponed a planned IPO, citing market conditions.
For the quarter, Grubhub had revenues of $322 million, up 30% from a year ago, but below the analyst consensus forecast of $330.5 million. Non-GAAP profits were 27 cents a share, in line with estimates. Gross food sales were $1.4 billion, up 15%. “Active diners” were 21.2 million, up 29% year over year, while “daily active grubs” were 457,000, up 10%.
For Q4, Grubhub projects revenue of $315 million to $335 million, below the old Street consensus at $387.3 million. The company sees adjusted Ebitda (earnings before interest, taxes, depreciation and amortization, a measure of cash flow) of $15 million to $25 million, well below the $53.8 million reported for Q3.
In a brutally frank 16-page letter to shareholders, Grubhub addressed how its business is being affected by changing dynamics in the food delivery sector. For starters, the company noted that the 10% rise in daily active customers “was at the lower end of our expectations,” adding “we suspect it may be at the lower end of your expectations as well.”
In the letter, Grub Hub writes that the trend accelerated starting in August.
“As we dug into the data, we saw that our newer diners, particularly those in our newer markets, were not driving as many orders as we expected at that point in their lifecycle,” the company wrote in the letter. “While retention of these newer diners was good, their ordering frequency wasn’t ‘maturing’ at the same level as earlier cohorts…At the same time, we also noticed that the retention rates, not just the frequency rates, of our newest diners (those acquired late in the second quarter), were slightly lower than prior cohorts.”
Grubhub writes that it studied the situation and concluded that “the supply innovations in online takeout have been played out and annual growth is slowing and returning to a more normal longer-term state which we believe will settle in the low double digits, except that there are multiple players all competing for the same new diners and order growth.”
In short, the company is getting crunched by a competitively saturated market.
“We believe online diners are becoming more promiscuous,” the company said. “For years, we saw in our data that a Grubhub diner was extremely loyal to our platform. However, our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms.”
And Grubhub added: “This is a significant change in our industry that will require us, and everyone else, to compete by creating the most value for diners and restaurants rather than relying on industry tailwinds.”
The company gave a stark warning on the near-term impact of all of this on its business.
“While our competitors continue to spend aggressively, swallowing steep losses in the process, we need to give new diners more reasons to try Grubhub, stop our existing diners from looking elsewhere and continue growing our diner base to ensure we are best positioned when the industry matures and reaches a stable long-term spending level.” Grubhub says it “will be moving quickly, spending more and trying many different strategies over the next 12-18 months to increase restaurant supply aggressively while making our diner experience more sticky—effectively taking action to remove any reason for diners to look anywhere else.”
While the company did not give detailed guidance for 2020, it did project adjusted Ebitda of at least $100 million.
Grubhub shares in after-hours trading were down 32%, to $39.95.
Write to Eric J. Savitz at email@example.com