GrubHub Shorts Make $500M In Profits From Earnings Miss

A rough year for GrubHub Inc GRUB investors got even worse on Tuesday when the stock dropped more than 43% following its third-quarter earnings report.

While GrubHub bulls got hammered, short sellers pocketed more than half a billion dollars.

Big Day For Shorts

GrubHub shorts more than doubled their year-to-date profits in a single day on Tuesday, banking $504 million on the big dip, according to S3 Partners. Analyst Ihor Dusaniwsky says GrubHub shot sellers were already up more than $369 million in 2019 prior to the big earnings drop.

Prior to the earnings release, there were more than 20.6 million shares of GrubHub stock held short, a position collectively worth more than $1.2 billion. Short interest represented about 22.6% of GrubHub’s total float, a relatively high amount.

Dusaniwsky said Tuesday that GrubHub’s short position peaked back in August at around 22.86 million shares, but it was still large enough to make Tuesday’s session a big win for short sellers. Tuesday was especially lucrative for last-minute traders who went short the stock just prior to earnings. S3 reported GrubHub short interest increased by about 193,000 shares in the week ahead of the report.

Short Sellers Doubling Down?

Dusaniwsky said GrubHub is one of the few large short positions in the Internet & Direct Marketing Retail group that have netted a profit for short sellers this year. Year-to-date mark-to-market gains for GrubHub shorts stood at around $874 million as of Tuesday.

Looking ahead, Dusaniwsky said he would not be surprised to see GrubHub’s outstanding short position hit new highs by the end of the year.

“Short sellers have been re-building their exposure over the last month and a half and with today’s windfall of mark-to-market profits we expect more short sellers to belly up to the table and order up more GRUB short sales,” he wrote in a report.

Benzinga’s Take

GrubHub’s numbers show increasing competition from Uber Technologies Inc UBER, DoorDash and others are clearly weighing on GrubHub’s business. However, Wednesday’s 7.5% uptick in GrubHub shares is a reminder of just how dangerous it can be to go short a company with such a large outstanding short position.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

GrubHub Analysts Debate If Investors Should Buy The 40% Plunge

Tesla Short Sellers Take $1.4B Earnings Hit

Photo courtesy of GrubHub.