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GrubHub (GRUB) Down 10.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for GrubHub (GRUB - Free Report) . Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GrubHub due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Grubhub Q4 Earnings Miss, Costs & Expenses Jump Y/Y

Grubhub reported fourth-quarter 2018 earnings of 19 cents per share, which lagged the Zacks Consensus Estimate by 9 cents. The figure plunged 48.6% on a year-over-year basis.

The decline can be attributed to higher investments on marketing and advertisements that fully offset strong top-line growth. Revenues surged 40.3% year over year to $287.7 million, which also missed the consensus mark of $289 million. Notably, revenue growth was also hurt by weather issues in December.

Total costs & expenses jumped 62.3% year over year to $290.6 million. Operations & support, sales & marketing, technology, and general & administrative expenses increased 76.4%, 54%, 70.1% and 48.9%, respectively.

Notably, revenue per order less operations and support costs fell sequentially in the fourth quarter, primarily due to $10-million investments in new markets. Moreover, the company spent $10-$20 million on advertisements. Technology expenses increased due to the acquisitions of LevelUp and Tapingo.

Adjusted EBITDA decreased 26.1% from the year-ago quarter to $42.1 million. Adjusted EBITDA per order was 98 cents, down from $1.57 in the previous quarter. Incremental spending on delivery and advertisement were almost 70 cents per order.
 
Quarter Details

Gross food sales climbed 20.9% year over year to $1.38 billion.

As of Dec 31, 2018, active diners were 17.7 million compared with 14.5 million in the year-ago quarter. Daily Average Grubs (DAGs) were 467,500 compared with 392,500 reported in the year-ago quarter. Excluding Eat24 orders, growth was 22%.
 
Further, the company launched GrubHub Delivery in 125 new markets compared with its original expectation of 100 new markets in the reported quarter.

Grubhub Delivery now accounts for approximately 30% of the company’s DAGs. Moreover, the company now has more than 105,000 restaurant partners in more than 2,000 cities in all the 50 states.

Guidance

For first-quarter 2019, GrubHub forecasts revenues between $310 million and $330 million. Adjusted EBITDA is anticipated to be $40-$50 million.

For 2019, GrubHub forecasts revenues between $1.315 billion and $1.415 billion. Adjusted EBITDA is expected to be $235-$265 million.
 
GrubHub delivery will continue to launch in new markets in 2019 but at a significantly slower rate than 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -66.67% due to these changes.

VGM Scores

At this time, GrubHub has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise GrubHub has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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