Grubhub (GRUB) had its credit rating cut at Moody’s Investors Service on Friday as slowing growth and higher spending is expected to bring a “significant deterioration” in the online delivery company’s credit metrics.
The corporate family rating was lowered to B1 from Ba3, with a stable outlook, Moody’s said. B-rated debt are subject to high credit risk and are considered speculative at the ratings firm.
“The B1 CFR reflects the uncertainty about Grubhub’s profitability amid intense competition and the evolving nature of the online food ordering and delivery industry,” Moody’s said in the note. “Grubhub’s risks are exacerbated by the low switching costs for restaurants and diners between competing platforms.”
Grubhub’s stock sank this week as the food-ordering and delivery company reported downbeat quarterly results and offered revenue guidance for the current three months that also missed views. On Thursday, S&P Global Ratings cut Grubhub to B+ from BB with a negative outlook.
Moody’s said it expects earnings before interest, tax, depreciation and amortization to decline by about 50% in the fourth quarter and 35% to 45% in 2020, year-on-year.
“The shift in the company’s strategy follows a ramp up in marketing spending in the second half of 2018 that was targeted at accelerating diner growth,” Moody’s said. “However, the new diners, and to a lesser extent the mature diners on Grubhub’s marketplace platform, are exhibiting lower order frequency and have shown a willingness to use multiple platform providers, evidencing heightened competition.”
Grubhub said this week it will spend more money over the next 12 to 18 months on different strategies to increase the supply of restaurants and keep diners loyal.
Moody’s kept the stable outlook on expectations that Chicago-based Grubhub will “maintain very good liquidity and that adjusted Ebitda and operating cash flow will increase after 2020 such free cash flow increases to least 10% of adjusted debt,” the agency said.