April 25, 2019 / 8:19 PM / 7 months ago

Grubhub profit better than expected, shares soar

LOS ANGELES (Reuters) - Grubhub Inc’s reported a first-quarter profit on Thursday that topped Wall Street’s view after the restaurant delivery service ramped up spending to woo restaurant partners and encourage customers to order more often and spend more.

It shares surged 8.2 percent to $75.47.

Grubhub, which is battling startups ranging from DoorDash and Uber Eats to Amazon.com Inc’s Amazon Restaurants, has swept up more than a half-dozen companies since its April 2014 initial public offering and has been spending aggressively to fend off competition.

During the first quarter, Grubhub had an increase in diners, improved quality and stable costs, the company’s chief financial officer, Adam DeWitt, said.

“There’s been a lot of investor fear around Grubhub losing its edge as a leader in the digital takeout market,” said Wedbush Securities analyst Ygal Arounian.

The latest report showed that Grubhub has a differentiated offering and “will remain a leader,” Arounian said.

Active diners grew 28 percent to 19.3 million during the quarter, bolstered by partner Taco Bell’s national campaign promoting delivery from the fast-food chain.

Grubhub’s first-quarter net income fell 78 percent to $6.9 million, or 7 cents per share. Excluding items, it earned 30 cents per share, beating analysts average estimate of 25 cents per share, according to IBES data from Refinitiv.

The company, which also has projects with Dunkin’ Donuts and Pizza Hut, hinted at more to come.

“I would love to announce the multiple deals that I’m aware are already signed, but we can’t because the brands would prefer to announce when they are preparing to announce,” Chief Executive Matthew Maloney said on a conference call.

Revenue jumped 39 percent to $323.8 million during the quarter, topping analysts’ estimate of $323 million.

Total costs and expenses climbed 57 percent to $314.9 million during the quarter, when sales and marketing outlays expanded almost 61 percent to $78.5 million.

Uber Technologies Inc earlier this month said Uber Eats had $1.5 billion in 2018 revenue, but that payments to its Uber Eats drivers “historically have exceeded the cumulative delivery fees paid by consumers.”

Beyond that, the fast-growing service charges its largest chain restaurant partners - which include McDonald’s Corp - lower service fees to compete in the crowded field.

Those pressures have caused Uber Eats’ “take rate” - or the percentage of revenue it keeps from each restaurant order - to decline and could “at times” push then into losses, Uber said.

Reporting by Lisa Baertlein in Los Angeles and Shariq Khan in Bengaluru; Editing by Cynthia Osterman; Editing by Leslie Adler

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