Grubhub – the Perfect Storm

Boat capsizing in perfect storm

Grubhub (GRUB) has been publicly traded since 2014. This year has been a dramatic collapse for the food delivery specialist that was once the darling in the online ordering business, but the Perfect Storm of challenges has crushed the stock.

Let’s Look at What Happened!?

Grubhub had no significant competitive advantages. Restaurants wanted to be on as many ordering platforms as possible and customers shopped around for the best deals. Then too, Door Dash and Uber Eats have been funded to the tune of hundreds of millions dollars; Grubhub can’t tap venture capital and is at the hands of its shareholders.

For years Grubhub diners were extremely loyal; now, with competitors like Door Dash and Uber Eats, their customer base is becoming more fickle, playing the field. CNBC’s Jim Cramer said that you only had to use their service and you could see the company’s struggle coming.

Partnerships

food dellivery to  cautious owner

The big-ticket partnerships that Grubhub is capable of drawing in is encouraging for stock option traders. A large portion of their growth last year, and the big driver of the increase in its share price, has been its partnership with Yum Brands (franchisor of KFC and Taco Bell), Wendy’s, Dunkin Donuts, IHOP, Panera Bread, Shake Shack and Subway.

After an off-&-on courtship, Grubhub and McDonald’s are teaming up on deliveries in New York. They seemed like the obvious partners – Grubhub one of the giants of online-ordering and McDonald’s, the biggest food chain.

Revenue

Revenue rose 30% year over year to a less than expected $322.1 Million and its number of active customers was less than predicted. The company is currently trading at less than one-third of its all time high in September 2018. It looks like sand is headed in the wrong direction in the hourglass for option trading. At the same time, the company is pouring in revenue more than $1 Billion annual rate – sure to attract competition and growth fatigue.

Barb’s Takeaway

National chain deals are key to sustaining Grubhub’s growth and we can hope for a recovery once these new partnerships have time to sink in. Over time, online food delivery will only experience growth; so despite heightened competition, there’s plenty of pie to share.

While Grubhub faces many challenges, the fact that the stock price is trading low at half the value it began the year, makes it attractive for trading options. Also, in considering the December 20 expiration date, it’s interesting to note that the $40.00 Call has 17,590 Open Interest contracts, while the average is 1,500 to 2,500.

Are You a Bull or Bear ?

Date: November 4, 2019 – Stock: Grubhub – Share price closed @ $35.01

If you’re a Bullish Mom and think Grubhub will go up, try the December 20, 2019 Expiration Date – CALL $30.00 Bid;  and $25.00 Ask strike prices.  Premium is $4.90 (mid @$4.46) debit to pay = Long Call Vertical Spread on  www.TDAmeritrade.com

On the other hand, Mom, if you think Grubhub is bearish and will go down, try the Expiration December 20, 2019 Date – PUT $30.00 Ask;  and $25.00 Bid strike prices. Premium is 0.65¢ (mid @0.53¢) debit to pay = Long Put Vertical Spread on www.TastyWorks.com

woman  arms outstretched asking question

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