Bear Of The Day: Grubhub (GRUB)

Grubhub Inc. (GRUB) has taken its lumps the last 6 months as spending has increased in order to expand its business model. This Zacks Rank #5 (Strong Sell) is expected to see declining earnings in 2019.

Grubhub is the nation's leading online and mobile food-ordering and delivery marketplace. It has more than 105,000 restaurant partners in over 2,000 U.S. cities and London. It's brands include the main Grubhub brand but also Seamless, LevelUp, Tapingo, Eat24, AllMenus and MenuPages.

An Earnings Miss in the Fourth Quarter

On Feb 7, Grubhub reported its fourth quarter results and missed on the Zacks Consensus by 9 cents. Earnings were $0.19 versus the consensus of $0.28.

Revenue soared 40% to $287.7 million, thanks to acquisitions of LevelUp and Tapingo during the year, as it grew active diners on its platform by 3.2 million during the quarter.

Active diners jumped to 17.7 million, up 22% from 14.5 million in the fourth quarter of 2017.

Gross food sales were $1.4 billion, up 21% from $1.1 billion in the fourth quarter of 2017.

Estimates Cut as Expenses Rise

The company has been rolling out new partnerships, like the one with Yum! Brand's (YUM) Taco Bell.

But expenses have been on the rise.

As a result, the analysts have slashed earnings estimates across the board for both 2019 and 2020.

Earnings are expected to decline 10.3% in 2019 as 7 estimates were cut after the earnings report. That pushed the Zacks Consensus down to $1.49 from $1.74. Grubhub made $1.66 in 2018.

Similarly, 6 estimates were also cut in the last 7 days for 2020, pushing the Zacks Consensus down to $2.20 from $2.42.

Grubhub said on the conference call they weren't managing the business for earnings.

But the estimate cuts are the reason the stock is now a Zacks (Strong Sell).

Revenue is the opposite story. Grubhub gave guidance of a range of $1.315 to $1.415 billion. The Zacks Consensus for Revenue is at $1.37 billion, or a gain of 36% year-over-year.

Shares Dive But Then Recover

After the earnings reports, the shares took a dive and the headlines screamed, "Grubhub falls the most in 3 years."

But they've rebounded and are now up 7.4% for 2019 and are down just 11.7% over the last year.

They're still nowhere near their 2018 highs, however.

They also aren't cheap. Grubhub is definitely a growth stock, with a forward P/E of 54.

Amazon Restaurants (AMZN) hasn't turned out to be much of a competitor but some investors are worried about UberEats and other delivery services.

But as Grubhub likes to point out, it's a technology company in the food industry. It is much more than just a delivery service now.

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