Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Is Grubhub losing money?

People are asking is Grubhub (NYSE: GRUB) losing money because the rumor mill claims the food delivery app is for sale.

The Wall Street Journal claims Grubhub’s management is investigating “strategic options.” The term “Strategic options” is The Journal’s euphemism for seeking an acquisition.

However, Grubhub’s management insists the company is not for sale, Barron’s reports. “We felt it was important to clarify that there is unequivocally no process in place to sell the company and there are currently no plans to do so,” a Grubhub spokesperson tells Barron’s.

Grubhub changes Ordering Process

Grubhub is changing its phone ordering process because of a New York City Council investigation, Eater claims.

Grubhub will now ask callers to dial one for orders and two for everything else, Eater claims. Grubhub took the step because the New York City Council is investigating the fees Grubhub charges restaurants. Grubhub took the step because a Philadelphia restaurant claims Grubhub charged it for phone calls that were not food orders.

Restaurants are complaining Grubhub is buying their web domains without the owners’ knowledge, Eater alleges.  The fear is Grubhub could set up and operate websites for the restaurants and take orders through them.

In addition, Grubhub hopes to add non-partnered restaurants, Eater claims. To clarify, non-partnered restaurants are eateries not in Grubhu’s platform.

Grubhub is taking the step because competitors such as DoorDash are working with non-partnered restaurants, Katie Norris said. Norris, Grubhub’s Senior Manager of Corporate Communications reportedly made the claim in Grubhub’s October earnings call.

Is Grubhub Making Money?

Thus Grubhub is changing its business model because of legal and political pressure. This will prompt investors to ask if Grubhub is making money?

Grubhub Inc. (NYSE: GRUB) is making a little money. For instance, Grubhub reported a quarterly profit of $131.18 million on revenues of $322.05 million on 30 September 2019.

However, Grubhub reported a quarterly operating income of just $3.59 million and an income after tax (net income) of only $1.01 million on the same day. Thus, Grubhub makes a little money from its business.

Does Grubhub Generate Cash?

Grubhub generates some cash from its business. Grubhub reported a quarterly operating cash flow of $86.22 million on 30 September 2019.

Plus, Grubhub reported a quarterly ending cash flow of $35.14 million on the same day. Thus Grubhub had some cash left over from its operations.

As a result, Grubhub had $426.21 million in cash and short-term investments on 30 September 2019. That figure was up from $377.04 million on 30 June 2019.

Grubhub is not a Value Investment

Therefore, Grubhub generates some cash but I think it has little value.

Grubhub has little value because it reported total assets of $2.379 billion on 30 September 2019. I think Mr. Market over valued Grubhub at $53.69 on 13 January 2019 because of the asset price.

I do not think Grubhub is making enough money or generating enough cash to justify the $55.19 stock price on 15 January 2020. Nor do I think Grubhub is an acquisition target.

Moreover, Grubhub is not an income stock because pays no dividend. Hence, the only possible value Grubhub has growth.

Is Grubhub a Growth Stock?

Stockrow estimates Grubhub’s revenues grew a rate of 30.27% in the quarter ending on 30 September 2019. However, the revenue growth rate fell from 51.62% in the quarter that ended on 30 September 2018.

Grubhub has experienced impressive growth in recent years. Statista estimates the number of Grubhub diners grew from 14.46 million in 2017 to 17.69 million in 2018. Plus Grubhub claims that number grew to 21.2 million in 2019.

Moreover, Grubhub claims over 140,000 restaurants in 2,700 U.S. cities and London participate in its platform. Impressively Grubhub claimed to process 457,300 diners a day and serve 21.2 million active diners on 13 January 2020.

Therefore, Grubhub is experiencing growth but politics could end that growth.

How Politics Threaten Grubhub’s future

I think a changing political climate threatens gig-economy companies such as Grubhub.

To explain, politicians and regulators are becoming less tolerant of companies such as Grubhub. For example, the New York City Council is investigating Grubhub’s business.

Dramatically, Transport for London banned Uber (NASDAQ: UBER) for a second time in November 2019, Fortune reports. Transport for London regulates rideshares and cabs in the British capitol.

Transport for London banned Uber because of allegations its drivers were using fake identities. I think, Transport for London fears terrorists or criminals could drive for Uber.

Grubhub has little value

However, Transport for London’s action could be a response to popular displeasure with low-paying gig economy companies that evade labor laws. Notably, some critics complain Uber is destroying London’s traditional black taxi cab system.

London shows governments can quickly and completely ban app-based companies such as Uber and Grubhub. That shows such companies have little value because their businesses can vanish fast.

In the final analysis, I think investors need to avoid app-based stocks such as Grubhub (NYSE: GRUB) because their businesses are so fragile. Instead, investors need to consider automakers and developers of self-driving car technology as alternatives to app stocks.

Those companies will survive and make money no matter who owns and operates the rideshare and delivery vehicles.