Food delivery service Grubhub Inc (NYSE:GRUB) saw its shares pop last week in anticipation of first-quarter earnings. Grubhub stock closed up 6.3% based on expectations that the big spike in food delivery demand during the novel coronavirus lockdown would pay off.
But earnings on Wednesday told a different story. While revenue and gross food sales were up, GRUB reported a net loss for the quarter and daily orders declined slightly. In response, GrubHub stock lost as much as 7.7% in after-hours trading.
Q1 Earnings for Grubhub Stock
GrubHub delivered its first-quarter earnings after the bell on May 6. Investors who had been expecting that demand for food delivery from consumers who are stuck sheltering in place would explode were disappointed.
Revenue for the quarter was $363 million, a 12% year-over year gain. However, the company reported a net loss of $33.4 million, or 33 cents per share. In comparison for Q1 2019, GrubHub was $6.9 million in the black, for EPS of 7 cents. The number of active diners grew 24% to 23.9 million. However, the “Daily Average Grubs” (daily food orders) actually declined 1% from Q1 2019.
The company declined to provide revenue guidance for the second quarter.
Less than impressed with the numbers and the downward trend in daily food orders, investors punishing GrubHub stock, although it slowly began working regaining some of its losses toward the end of the week.
Is Food Delivery a Sustainable Model?
One question that remains is whether food delivery services like GrubHub and Uber’s (NYSE:UBER) Uber Eats can be profitable in the long run. There are big questions, including worker pay and the fees charged to restaurants.
Rebecca Given is an associate professor of Labor Studies and Employment Relations at Rutgers University. In April, she told Marketplace:
“We’re at a critical juncture where one of the questions is whether these companies will be able to continue essentially ignoring all regulations, whether we’re talking about monopolies and price gouging or whether we’re talking about how workers are treated.”
Anger Building Against Food Delivery Services
There is palpable anger building against GrubHub and other food delivery services. The coronavirus pandemic should have been an opportunity to win the support of restaurants and consumers. Instead, resentment against the companies seems to be reaching a boiling point.
Drivers are increasingly upset about pay rates and their status as independent contractors. Consumers are unhappy with delivery fees, and often switch between services based on which is offering a discount promotion at the time. Restaurant owners — who theoretically should be benefiting from the ability to sell more food through delivery — are struggling to survive while paying delivery commission fees that can hit 40% of an order’s value.
In April, San Francisco issued an emergency order capping the fees food delivery services can charge restaurants at 15%. Lawmakers in GrubHub stronghold New York are pushing for a 10% cap.
In addition, lawsuits have been filed against GrubHub, Uber Eats and other food delivery services. Claiming violations in U.S. antitrust law, an April class action lawsuit was filed on behalf of New York consumers. This latest high profile lawsuit wasn’t the first, and it won’t be the last.
The Bottom Line on GrubHub Stock
Last October, GRUB dropped 40% on a big earnings miss. The stock suffered a downgrade by Goldman Sachs, which slashed its 12-month price target from $86 to $30, admitting “we got this wrong.”
Other investment analysts aren’t quite so down on Grubhub stock. That $30 remains the low among the analysts polled by CNN Money, but the median 12-month price target of $46 shows they still think the stock is overvalued. And you won’t find many recommending you buy GrubHub stock at this point.
The coronavirus pandemic hasn’t proven to be the shining moment for food delivery services that had been hoped. Instead, grocery delivery seems to have assumed the starring role. Add lawsuits from restaurant owners and consumers over food delivery fees to the mix, and the future doesn’t look so bright for GrubHub.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
