Shares in Grubhub plunged 43% Tuesday after it sharply cut its revenue expectations for the year and warned of intense competition.
The steep decline in share price wiped away more than $2.25 billion of the company’s valuation in the public market in midday trading.
It is the worst single-day decline for shares since the company went public almost six years ago.
In a letter to shareholders, the company said that “supply innovations in online takeout have been played out” and that annual growth is slowing to a longer-term rate of low double digits.
Grubhub, facing significant pressure from new rivals including UberEats, DoorDash and PostMates, cut its fourth-quarter revenue projections to between $315 million and $335 million. It also trimmed its earnings forecast to between $15 million and $25 million.
After the bell on Monday, the food delivery company reported third-quarter revenue of $322 million, a 30% increase from the previous year, but short of the $330 milllion Wall Street analysts were expecting.
And food sales grew 15% year-over-year to $1.4 billion, up from the $1.2 billion in last year’s third quarter.
Even as sales grow, executives with the Chicago company acknowledge that they are now playing in a crowded field and must do more to strengthen customer loyalty. That has proven difficult with rivals rolling out money-saving promotions to lure customers away from Grubhub.
”As we dug into the data, we saw that our newer diners, particularly those in our newer markets, were not driving as many orders as we expected at that point in their lifecycle,” the company said in a frank letter to shareholders. “Furthermore, we believe online diners are becoming more promiscuous.”
Customers are choosing the rival delivery services as they would meals from a menu, depending on the day. That is pressuring all delivery services.
Earlier this month, PostMates postponed plans to become a publicly traded company saying the conditions were not favorable.
Grubhub’s stock fell to $33.11 per share on Tuesday, less than half the price at the same time last year, and down 77% from all-time highs near $150 just over a year ago.
If there is a silver lining for Grubhub, it’s that the delivery customer, millions of them, are up for grabs and they are spending.
The proliferation of apps has driven a 20% increase in delivery sales over the last five years, according to the NPD Group.
And it’s not just for pizza dinners. NPD said the largest areas of growth for restaurant delivery are for breakfast and lunch.