(GRUB) shares are slated for late trading on Monday, after the food delivery company had less than expected Q3 revenue – and more alarming – Q4 guidance that was dramatically below Wall Street expectations.
The report comes amid a period of intensifying competition in the food delivery business, which companies like
(UBER) Uber Eats, DoorDash and Postmates spend a lot on expanding their position in the business. Postmates earlier this month postponed a planned IPO citing market conditions.
For the quarter, Grubhub had revenue of $ 322 million, up 30% from a year ago, but below analysts' consensus forecast of $ 330.5 million. Earnings without GAAP were 27 cents per share, in line with estimates. Gross food sales were $ 1.4 billion, up 15%. “Active eateries” were 21.2 million, up 29% on the previous year, while “daily active pits” were 457,000, up 10%.
For the fourth quarter, Grubhub projects revenue of $ 315 million to $ 335 million, under the old street consensus of $ 387.3 million. The company sees adjusted Ebitda (earnings before interest, taxes, depreciation, a measure of cash flow) of $ 15 million to $ 25 million, well below $ 53.8 million reported for the third quarter.
In a brutally candid 16-page letter to shareholders, Grubhub addressed how business is affected by changing dynamics in the food delivery sector. First, the company noted that a 10% increase 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 from August.
"When we dug in the data, we saw that our newer eateries, especially those in our newer markets, were not running as many orders as we expected at that time in their life cycle," the company wrote in the letter. "While maintaining these newer dining guests was good, their ordering frequency was not" maturing "at the same level as previous years … At the same time, we noticed that the retention rate, not just the frequency, of the newest dining guests (those acquired late in others quarterly) was slightly lower than the previous year. "
Grubhub writes that it studied the situation and concluded that" the offer innovations in online takeout have been played out and annual growth slows down and returns to a more normal more long-term state that we believe will settle. themselves in the low double digits, except that there are several players all competing for the same new diners and order growth. "
In short, the company is crushed by a competitive saturated market.
"We believe that online diners are becoming more promiscuous," the company said. “For years, we saw in our data that a Grubhub dining room was extremely loyal to our platform. However, our newer eateries are increasingly coming to us who have already booked on a competing online platform, and our existing eateries 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 eateries and restaurants rather than relying on industry winds. ”
The company gave a strong warning about the near-term impact of all this on the business.
“While our competitors continue to use aggressively and swallow steep losses in the process, we must give new eateries several reasons to try Grubhub, stop our existing eateries from looking elsewhere and continue to grow our dining base to ensure we is best positioned as the industry matures and reaches a stable long-term spending level. "Grubhub says it" will go fast, use more and try many different strategies over the next 12-18 months to aggressively increase restaurant supply, while making our restaurant experience more sticky – Effective to take action to remove any grounds for that the diners must look elsewhere. ”
While the company did not provide detailed guidance for 2020, it did project-adjusted Ebitda of at least $ 100 million.
Grubhub shares during trading hours are down 22% to $ 45.45.
Write to Eric J. Savitz at email@example.com