Research Update: Grubhub Downgraded To 'B+' On Strategic Pivot, Weakening Industry Fundamentals, And Elevated Spending, Outlook Negative

Chicago-based Grubhub Inc. has announced that it will temporarily ramp up its investment spending to offset the increased commoditization of online food ordering platforms and the lower lifetime value of its newly acquired diners. The announcement coincided with a sharp reduction in the company's 2020 adjusted EBITDA guidance, which it lowered to at least $100 million (about 60% lower than our previous estimate). We now expect its gross adjusted debt leverage (on an S&P-calculated basis) to rise to the 7x-8x range in 2020, which is up from our previous expectation for a decline to the low 2x area. We are lowering our issuer credit rating on Grubhub to 'B+' from 'BB'. At the same time, we are lowering our issue-level

...- Chicago-based Grubhub Inc. has announced that it will temporarily ramp up its investment spending to offset the increased commoditization of online food ordering platforms and the lower lifetime value of its newly acquired diners. - The announcement coincided with a sharp reduction in the company's 2020 adjusted EBITDA guidance, which it lowered to at least $100 million (about 60% lower than our previous estimate). - We now expect its gross adjusted debt leverage (on an S&P-calculated basis) to rise to the 7x-8x range in 2020, which is up from our previous expectation for a decline to the low 2x area. - We are lowering our issuer credit rating on Grubhub to 'B+' from '##'. At the same time, we are lowering our issue-level rating on its senior unsecured notes to '##-' from '##' and are revising our recovery rating on the notes to '2' from '3'. - The negative outlook reflects the risk that the company's profit margins and cash flow generation will remain compressed beyond the next 12-18...

Research Update