Grubhub founder: 'I am not staying up at night dreaming about consolidation'
Don’t believe the speculation running rampant on Wall Street. Grubhub founder Matt Maloney isn’t awaking each morning trying to find a money-losing, upstart food delivery business to bolt onto his profitable marketplace (and increasingly delivery) outfit.
“Everyone is very fixated on consolidation. It’s not pre-ordained. There is no reason that two is better than four or five. What we have proven is that you can successfully buy scale, but you aren’t going to buy scale at an obscene price. It has to be accretive to our shareholders. If there is an opportunity to expand our scale and better leverage our delivery, loyalty and sales infrastructure and product and engineering of course we would do it,” Maloney told Yahoo Finance Wednesday evening moments after Grubhub’s fourth quarter earnings hit the newswires.
Added Maloney, “I am not staying up at night dreaming about consolidation. I am staying up at night thinking about how we execute better for our existing restaurant partners and be as competitive as possible. We have done a really good job at that.”
Questions around the future of food delivery stalwarts Grubhub, Uber Eats, Doordash and others have swirled harder on Wall Street in recent months. And who could blame analysts for clamoring for consolidation, which they allege will create scale that drives sustainable profits.
For the nine months ended Sept. 30, Uber Eats lost a shocking $911 million on an adjusted EBITDA basis — that’s up from a $323 million loss a year ago. Uber Eats will likely show more massive losses when the company reports earnings later this week. Losses of that magnitude for Uber Eats points to a business that is in big-time trouble, and clearly not viable in its existing form.
Hence, growing calls for Grubhub and Uber Eats to combine.
Meanwhile, Amazon Restaurants closed for good in June last year after making little headway in the food delivery space. Caviar couldn’t hack it, so it sold out to DoorDash in August for $410 million.
Waitr’s stock has crashed amid a year of staggering losses to the tune of $270 million as the company struggled to stay competitive amid all the industry discounting.
Some form of shake out — as Domino’s Pizza CEO Richard Allison put it to me in an interview — has to happen. And it could take several forms.
One, the money-losing third-party food delivery players go belly up under the weight of their own penchant for offering deep discounts on orders, heavy advertising and aggressive investment in tech. In turn, a large restaurant chain such as McDonald’s could swoop in and buy a major delivery player on the cheap and gain access to a turnkey operation.
Another version of an industry shakeout could see a well-established, well capitalized player such as GrubHub continue to buy up smaller rivals to gain the required economies of scale to be a viable business longer term. GrubHub has taken on the role of consolidator thus far — it has acquired nine food delivery platforms since 2013, including Seamless and Eat24.
Or a slight twist on this version may see GrubHub merging with Uber Eats, becoming its own stand-alone entity.
Maloney is staying disciplined in this otherwise crazy environment, however. Don’t expect him to pull the trigger on some business pumped with venture capital money that is flying out the back door due to rampant discounts and reckless spending on useless infrastructure. It’s a wise move, even if it’s not what Wall Street wants.
“The problem with valuations are they are a point in time. The previous private valuations I had heard about are extremely aggressive. And if there are going to be down-rounds to be had, that will be pretty painful for the company. But it would bring the valuations down to where the public markets are for publicly traded companies,” Maloney said.
About those Grubhub earnings
Net net Grubhub had a respectable end to 2019 after running into some speed-bumps — mostly tied to rivals giving away free food and delivery services — late in the year.
Revenue: $341.3 million vs. $325.93 million expected
Adj. EPS loss: 5 cents vs. 3 cents expected
The food delivery company had 22.6 million active diners during the quarter, and gross food sales totaled $1.6 billion. Analysts were expecting 22.2 million active diners and $1.46 billion in gross food sales.
Meanwhile, daily average grubs rose 8% from last year to 502,600, which was better than Wall Street estimates for 480,280. Investors initially sent the stock down 1%, before reversing some of those losses in choppy post-market action.
Shares rose 7% in after-hours trading on Wednesday.
Revenue guidance for Grubhub was in-line with Wall Street estimates. For the first quarter, the company expects between $350 million to $370 million, and for 2020 revenue is projected between $1.4 billion to $1.5 billion.
Analysts were expecting first quarter revenue of $364.9 million, and full-year revenue of $1.46 billion. The company reiterated its adjusted EBITDA guidance for 2020 of “at least” $100 million.
Maloney said Grubhub is piloting a subscription diner service, but didn’t elaborate on roll-out plans. But it certainly has potentially, and is perhaps one element to the stock trading higher off the report.
The Street also continued to pepper their clients with notes on Thursday about industry consolidation.
Said Jefferies analyst Brent Thill, “We still think consolidation in the space is imminent and that ultimately the industry can support 2-3 winners (similar to the OTA space).”
So much for a normal earnings day.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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