Oppenheimer Downgrades GrubHub To Perform Amid 'Competition Concerns'

• Shares of GrubHub Inc GRUB have declined 28.92 percent over the past six months, reaching a low of $18.34 on January 28.
• Oppenheimer’s Jason Helfstein has downgraded the rating on the company from Outperform to Perform.
• Helfstein believes that there could be downside risk to the stock, while an acquisition of the company was unlikely in the near term and competition was intensifying.

Analyst Jason Helfstein mentioned that although the 4Q results were ahead of expectations, driven by GrubHub’s margins, and the FY16 guidance was “modestly better,” there were increasing concerns that increasing competition in New York would adversely impact revenues and profitability during the next 12 to 18 months.

GrubHub reported its 4Q revenue one percent above consensus, despite unfavorable weather, growing 27 percent year on year. Gross food sales increased 26 percent, while the organic commission rate increased 8bps quarter on quarter. Active diners also grew, while the EBITDA came in above the estimate and the consensus.

The company issued its 1Q EBITDA guidance 3 percent above consensus, with in line revenue, implying 24 percent year on year growth. GrubHub intends to undertake re-branding in order to expand its customer base.

On the other hand, with Amazon.com, Inc. AMZN and Uber beginning to “aggressively pursue food delivery,” Helfstein believes that “GRUB will see margin compression on reduced order rates, more expensive customer acquisition costs and lower commission rates.”

Amazon already has a larger user base than GrubHub, while Uber is rapidly growing, Helfstein added.