October 28, 2019 / 11:59 PM / 16 days ago

GrubHub blames 'promiscuous' diners for slowing growth, shares sink 30%

(Reuters) - Shares of GrubHub Inc (GRUB.N) plunged nearly 32% in extended trading on Monday, after the online food delivery company warned of slowing growth as customers opted to choose from a growing pool of rival providers to get better deals.

The company also reported lower-than-expected quarterly results and forecast its fourth-quarter revenue sharply below Wall Street expectations on Monday.

Food delivery service UberEats from Uber Technologies Inc’s (UBER.N) has grown into a national competitor, and startups ranging from DoorDash to Postmates also target diners, marking what GrubHub described as a shift in the industry.

“We believe online diners are becoming more promiscuous,” Chief Executive Matt Maloney and President Adam DeWitt said in a letter to shareholders.

“Our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms.”

Partly as a response, the company will significantly slow growth in advertising spending over the next 12 to 18 months.

The company has estimated that the value of the market, including pickup and delivery, stands at more than $200 billion annually.

“We believe this competitive dynamic had a 300+ bps (basis points) impact on our growth rate for the third quarter,” the company said.

The food delivery company will start adding non-partnered restaurants on its platform, expecting to double the number of brands on GrubHub by the end of 2020.

The company noted that small restaurants that needed GrubHub’s help with digital offerings were its core partners even as it expands collaborations with national and global restaurant brands such as KFC. The big companies spend billions of dollars annually developing their own brands.

“What they need most is a driver to take the food to their diners,” the executives said. “That isn’t cheap, or particularly scalable, so the unit economics and long-term profit outlook for our business would look very different if a majority of our business was coming from large enterprise brands.”

GrubHub forecast its fourth-quarter revenue to be between $315 million and $335 million, below analysts’ expectations of $387.5 million, according to IBES data from Refinitiv.

For the quarter ended Sept. 30, net income fell to $1 million or 1 cent a share, from $22.7 million, or 24 cents per share, a year earlier.

Excluding items, it earned 27 cents per share.

Revenue rose 30% to $322.1 million, but missed estimate of $330.5 million.

The Chicago-based company had been slated to report its quarterly earnings on Tuesday, before markets open.

Reporting by C Nivedita in Bengaluru; Editing by Sriraj Kalluvila and Sherry Jacob-Phillips

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