What Wall Street Thinks About GrubHub's Mixed Quarter

GrubHub, Inc. GRUB went on a wild ride Thursday after the company reported a seemingly disappointing quarter, including an earnings miss and below-consensus guidance. After a huge initial sell-off, the stock recovered most of its losses and was trading higher Friday morning.

Investors may be reconsidering the impact of a couple of quarters given that GrubHub reported impressive 40-percent revenue growth compared to a year ago.

Several Wall Street analysts have weighed in on GrubHub since the quarterly print. Here’s a sample of what they had to say.

Shrinking Margins

GrubHub investments that are responsible for accelerating order volume are a worthwhile justification for declining margins, Bank of America Merrill Lynch analyst Nat Schindler said in a note. 

“At this point, we think the bad news (falling margins as GRUB invests for growth) is in the stock and in the numbers — early 2019 should be the company’s margin low point — but the good news (accelerating core metrics) is just beginning,” the analyst said. 

D.A. Davidson analyst Tom Forte said GrubHub management is investing more in expanding to new markets than he had anticipated. “While surprised to hear management suggest the revenue shortfall was, at least, due partly to unfavorable weather in the month of December, we accept that explanation,” he said. 

Investments Paying Off

Morgan Stanley analyst Brian Nowak said the weak quarter and disappointing guidance means it’s too early to predict a bounce-back year for GrubHub in 2020.

“The challenge is, we see the online food delivery space remaining competitive, and (to some extent) given how early the market opportunity is, don’t believe GRUB should necessarily slow its marketing spend,” he said. 

Wedbush analyst Ygal Arounian said growth in net diners is proof GrubHub’s heavy investing is paying off. “That Grubhub is committing to the incremental $20mm/quarter in marketing in 2019 is a net positive and means it saw efficiency in the 4Q18 spend and is now comfortable that it can spend at a larger magnitude and keep CAC stable while capturing more market share,” the analyst said. 

Stephens analyst Will Slabaugh said the earnings call reflected GrubHub's confidence that earnings and margins can improve throughout 2019.

"GRUB explicitly said it doesn't expect to further increase its marketing spend in 2020, giving us confidence that a positive EBITDA inflection will come next year (and making our 2020 EV/EBITDA valuation of ~22.6x attractive on 40-percent EBITDA growth)." 

Ratings And Price Targets

• Bank of America upgraded GrubHub from Neutral to Buy and raised the price objective from $98 to $108. 
• Morgan Stanley maintained an Equal-Weight rating and lowered its price target from $78 to $72. 
• D.A. Davidson maintained a Buy rating and lowered its price target from $120 to $100.
• Wedbush maintained an Outperform rating and $130 target.
• Stephens maintained an Overweight rating and lowered its price target from $155 to $135. 

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Photo courtesy of GrubHub.