Grubhub’s Struggles Could Chill Food Delivery Hype

Grubhub’s Struggles Could Chill Food Delivery Hype
Public investors favor profits over growth, but company isn’t delivering much of either
By Laura Forman Oct. 20, 2019 10:00 am ET
News flash: Making money suddenly matters in tech. That is bad news for any company competing in a sector filled with rivals desperate to gain scale, such as food delivery, and could leave Grubhub  investors with a bitter aftertaste.
Venture capitalists have, in a matter of months, gone from trumpeting growth at all costs to evangelizing a new ethos that includes terms including “discipline,” “unit economics” and, perhaps most important, “profitability.” The dramatic change in tune has come in the midst of an icy reception from public investors to cash-burning companies like Uber, Lyft, WeWork and Peloton, which were all hotly anticipated by public investors just months ago.
Grubhub has shed 53% of its market value over the past year and 26% over the past three months alone. Those losses have come as a direct result of competitors’ growth. Earlier this month, Edison Trends released data showing Grubhub’s commanding market share lead has been cannibalized over the past 18 months by Uber Eats and the new market leader, DoorDash, which led Grubhub by 11 percentage points of market share as of September.
While losing its stranglehold on the market, Grubhub has also become less profitable. Net income fell from $54 million in the fourth quarter of 2017 to a loss of $5 million during the same period of 2018, according to FactSet, marking Grubhub’s first net loss as a public company. And while the company said after its first-quarter report this year that it would be disciplined about spending despite heavy competition, profits haven’t exactly come roaring back. Not only does Grubhub appear to have lost market share over the past few months, but analysts polled by FactSet expect the company to deliver net income of just $2 million in what is a seasonally weak third quarter, down more than 90% year-over-year.
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It could get worse. Grubhub and its competitors have lately caught regulators’ attention for the steep cuts they charge restaurant customers in key geographies such as New York City. There, the City Council’s small-business committee is considering a cap on commission fees that could disproportionately weigh on Grubhub’s bottom line given that it is the largest delivery platform in New York City by far. Second Measure data from August shows Grubhub handles 71% of third-party delivery sales in that market.
As the only publicly traded pure play in the industry, Grubhub’s shares are a barometer of the market’s views on the economics of food delivery. Clearly they reflect doubts even as the business has grown overall. They will likely continue to do so until Grubhub and its competitors can master a more palatable recipe for profitability and growth.


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