Analyst Calls GrubHub's Q2 'Good Enough'

GrubHub Inc GRUB reported second-quarter results which prompted a sell-off in the stock but at least one Street analyst remains bullish on the mobile food-ordering and delivery marketplace company.

The Analysts

Stephens' Will Slabaugh maintains an Overweight rating on GrubHub with a price target lowered from $135 to $110.

Morgan Stanley's Brian Nowak maintains at Equal-weight, price target lowered from $72 to $68.

Stephens: 'Good Enough' Quarter

GrubHub reported a "good enough" quarter highlighted by a 36% year-over-year increase in revenue to $325.1 million which also beat estimates and near the high-end of management's own guidance, Slabaugh wrote in a note. Other encouraging takeaways from the quarter include in-line EBITDA of $54.7 million, Gross Food Sales (GFS) and Active Diners showed accelerating growth which signals success in marketing campaigns.

The company's revenue beat but inline EBITDA likely suggests diners are taking more time to become frequent users in new markets than what many analysts were likely expected, the analyst wrote. This factor looks to be incorporated into management's third-quarter revenue guidance at $320 million to $340 million versus expectations of $332.07 million and a reduction of the full-year guidance.

As such, GrubHub's strategy of winning the food ordering market is showing signs of success even if it is taking longer than expected to play out. The longer-term bullish thesis remains intact and GrubHub continues to hold a strong position moving forward.

Morgan Stanley: The Challenge With Investments

GrubHub's disappointing outlook relative to expectations could be seen as a function of increased investments in growth initiatives, Nowak wrote in a note. Management deserves credit for investing in the business and expand its total addressable market but the incremental earnings power from investments continued to trend lower.

In fact, current estimates models GrubHub to earn $1.46 in EBITDA per order in 2020 which is still short of the $1.52 in EBITDA it earned per order in 2017. Since then the company started to invest in its delivery network while the competitive environment picked up.

Price Action

Shares of GrubHub were trading lower by another 3.4% at $67.54 Wednesday.

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