KeyBanc Cuts GrubHub Estimates, Says Food Delivery Service Losing Share Of Diner Spending

GrubHub Inc GRUB seems to be losing share of spending among diners it acquired, which suggests an increase in slaes and marketing expenses, according to KeyBanc Capital Markets.

The Analyst

Andy Hargreaves maintained a Sector Weight rating on GrubHub. 

The Thesis

A retention analysis based on KBCM First Look Data indicates a decline in spending by diners that GrubHub acquired, which suggests that marketing expenses should be projected against order volume rather than diner growth, Hargreaves said in a Sunday note. (See his track record here.) 

The analysis showed that the portion of total online food delivery budget spent on GrubHub among diners acquired by the company in the back half of 2017 fell from 84 percent in January 2018 to 57 percent in April 2019, the analyst said. 

Total spending by GrubHub-acquired diners declined 60 percent between January 2018 and April 2019, according to KeyBanc. 

The sell-side firm lifted its sales and marketing estimates to incorporate these trends, and Hargreaves said the higher estimates result in a decline in KeyBan's adjusted EBITDA estimates for 2019 and 2020, from $249 million to $245 million and from $343 million to $311 million, respectively.

“GrubHub operates as a top player in a fast-growing market, but faces challenges from a mix-shift to delivery and stiff competition that are likely to limit profit dollar growth for the foreseeable future," he said. 

Price Action

GrubHub shares were up 0.84 percent at $65.72 at the time of publication Monday. 

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Photo courtesy of GrubHub.