Grubhub stock paid the price on Tuesday for summer revenue that lagged behind Wall Street's expectations and a forecast that did little to lift the gloom.
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Shares in the digital food delivery service plunged 43 percent Tuesday, wiping out more than $2.25 billion of market value, after executives warned of intensifying competition from rivals such as UberEats, DoorDash and PostMates. The decline was the largest since the company went public almost six years ago.
Grubhub cut its fourth-quarter revenue projections to $315 million to $335 million. It also trimmed its earnings forecast to $15 million to $25 million.
After the bell on Monday, the food delivery company reported third-quarter revenue of $322 million, a 30 percent 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.
"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," CEO Matthew Maloney said in a frank letter to shareholders.
"Online diners are becoming more promiscuous," he added. "For years, we saw in our data that a Grubhub diner was extremely loyal to our platform. However, our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms."
Grubhub says it hopes to double the number of restaurants on its platform by the end of 2020 by expanding a pilot program that included non-partnered restaurants. The company admitted the new strategy contradicts its philosophy of delivering only for partnered restaurants and that it was not in the company's best interests long-term.
"The food delivery market is growing increasingly irrational as competitors flood the market with rewards and incentives, making online diners less loyal," said Bank of America analyst Nat Schindler, who downgraded his rating on the stock to hold from buy. "GrubHub's answer to this irrationality, however, seems confusing: Its management letter seems to suggest that it will double down on its competitors' poor economic decisions."
The Associated Press contributed to this report.