GrubHub shares crater more than 40% after a terrible earnings report causes analysts to bail on the stock

Key Points
  • GrubHub received five downgrades, including double downgrades from both Bank of America Merrill Lynch and Oppenheimer following its disappointing third-quarter results.
  • The food delivery company missed on revenue and posted a fourth-quarter forecast well below Wall Street's expectations.
  • "Competitive food delivery offerings (Uber, Doordash and others) are eroding GRUB usage," Oppenheimer analyst Jason Helfstein said in a note to clients.
The GrubHub website on an iPhone.
Andrew Harrer | Bloomberg | Getty Images

Shares of food delivery company GrubHub tanked more than 40% after disappointing earnings and dismal guidance forced Wall Street to abandon the already struggling stock.

GrubHub received five downgrades, including double downgrades from both Bank of America Merrill Lynch and Oppenheimer, where the firms flipped from recommending buying the stock, to selling.

"Competitive food delivery offerings (Uber, Doordash and others) are eroding GRUB usage and expected to worsen in 4Q, suggesting historical [long tern value] is no longer reliable," said Oppenheimer analyst Jason Helfstein, who slashed his price target on the stock to $34 from $91.

GrubHub has lost more than half of its market value this year as competing food delivery services like UberEats, DoorDash and PostMates pressure fundamentals. The company spent heavily on promotions to gain market share. GrubHub reported third-quarter revenue of $322 million, missing estimates of $330.5 million, according to Refinitiv.

Earnings were in line with expectations at 27 cents per share. Orders decreased 15% since the same period last year, dropping further from its second-quarter decrease of 11%.

The weak spot of the report was the company's fourth-quarter guidance that wrecked analysts hopes about the rest of the year. GrubHub, which has a market value of about $5.3 billion, said it sees fourth-quarter revenue in a range of $315 million to $335 million, well below the forecast $388 million. Management noted weaker order frequency as the company fails to mature like its rivals.

"The food delivery market is increasingly irrational as competitors flood the market with rewards and incentives, making online diners less loyal," said Bank of America analyst Nat Schindler in a note to clients.

To combat this irrationality, GrubHub will focus on adding nonpartner restaurants, expanded national chain integration and diner promotions.

"We 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," the company's CEO, Matt Maloney, said in a note to shareholders Monday.

"We think this will accelerate industry consolidation, but GRUB has a weaker currency than the two largest players and we see limited investor demand with slowing growth and declining EBITDA," said Helfstein.

GrubHub shares closed down 43.3% on Tuesday. 

— With reporting from CNBC's Michael Bloom.

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