GrubHub (GRUB 81.06, -2.89, -3.44%) opened under pressure today after reporting
Q4 results and providing weak EBITDA guidance for Q1 and 2019. The good news is
that the stock rebounded nicely during an upbeat conference call this morning.
Non-GAAP EPS fell 47% year/year to $0.19, which was quite a bit below market expectations. Revenue rose 40.3% year/year to $287.7 mln, which was within prior guidance of $283-293 mln. However, that was below market expectations. It was GRUB's first EPS miss in eight quarters and revenue was light for the first time since 4Q16. Adjusted EBITDA was $42.1 mln, at the lower end of prior guidance of $40-50 mln.
While Q4 results were not great, it was really the guidance that caused the stock to drop sharply this morning. GRUB sees Q1 revs of $310-330 mln, which is in-line, but its adjusted EBITDA guidance of just $40-50 mln for Q1, was well below market expectations. For FY19, GRUB sees revs of $1.315-1.415 bln and adjusted EBITDA of $235-265 mln. Again, the revenue number is in-line, but the EBITDA guidance was weak. GRUB does not guide for EPS, only adjusted EBITDA, so investors pay close attention to that metric.
GRUB faced some headwinds in Q4, including warm weather in December, and it spent at the high end of expectations. As for the weak Q1 and 2019 guidance, GRUB informed investors that it plans to continue its higher marketing/investment spend in 2019 as ROI has been great. GRUB has been acquiring new diners at a good cost per diner. This will impact EBITDA in 2019, but it should increase throughout the year.
GRUB made the point that this is not dissimilar from the hit it took when it started offering free delivery in 2015. GRUB feels it will get rewarded down the road. GRUB will continue launching in new markets in 2019 but at a much slower rate than that of 2018. There is always some operating drag when entering new markets, but GRUB expects little drag to be remaining by 4Q19.
When asked about the competitive landscape, GRUB said it's seeing more opportunity than ever. Has not slowed growth, it's probably increasing awareness, GRUB still has structural advantages. Furthermore, the higher spending levels is not because of concerns about competition; rather, it's more about maximizing opportunity. The company has not seen churn rates accelerate, nor seen its ability to grow hindered; GRUB will keep investing where it sees positive ROI.
The stock sits lower today, although it is well above its intraday low of $66.63 as the stock rebounded during what was an upbeat call this morning. Nevertheless, the company’s higher spending plan could put a bit of a damper on the stock in the coming months. These investments probably will pay off later in 2019 and more likely in 2020, but investors should expect some near-term pain. With that said, it's worth keeping GRUB on the radar as a turnaround play later this year as those investments start to abate and provide some ROI.
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