GrubHub Drops Despite Beat-And-Raise Quarter

Shares of GrubHub Inc (NYSE: GRUB) heavily sold off following its third-quarter earnings report despite a top-and-bottom line beat.

The Analyst

Stephens' Will Slabaugh maintains an Overweight rating on GrubHub with an unchanged $155 price target.

The Thesis

GrubHub, an online and mobile food ordering and delivery platform, said it earned 45 cents per share in the quarter on revenue of $247.2 million. By comparison, Slabaugh said he was expecting the company to earn 40 cents per share on revenue of $236.4 million. The company sees fourth-quarter sales of $283-$293 million, ahead of $272 million estimates.

Active diners on the platform of 16.4 million and daily active users of 416,000 were both better than expected and solidifies the underlying organic demand of the platform.

However, adjusted EBITDA rose 41 percent from a year ago to $60.1 million, but fell short of the analyst's estimate of $62.9 million. The profit miss could be attributed to higher costs "across the board," especially in sales and marketing. The company highlighted even higher ad spending in the fourth quarter by as much as $30 million to gain market share in 200 new delivery markets.

While the company's strategy to further invest in its platform to gain market share is the right decision for the longer term, the analyst said it nevertheless prompted a revision to fourth quarter EBITDA guidance. Specifically, management's new EBITDA guidance of $40 million to $50 million, which is short of the consensus estimate of $72 million.

Price Action

Shares of GrubHub were trading lower by 10 percent to $98.52 at time of publication. Shares hit an intra-day low of $89.02 in the morning.

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Photo courtesy of GrubHub.