As GrubHub celebrates its fifth IPO anniversary, some analysts question the company’s ability to remain profitable. The market for online food delivery is becoming increasingly crowded but that doesn’t seem to concern GrubHub’s CEO, Matt Maloney.
This week, Maloney made an appearance on Mad Money with Jim Cramer. During the segment, he largely dismissed these concerns, saying he’s focused on investing in the future and isn’t concerned about what analysts say.
GrubHub’s plan for growth
Since GrubHub went public, the market for digital food ordering has grown to 10 times what Maloney originally thought it would be. Maloney says the market has grown rapidly because Americans have embraced online food delivery.
At one time, GrubHub had an exclusive corner on the market but now face competition from companies like DoorDash, UberEats, and Postmates. This has caused the company to invest heavily in marketing campaigns and technology updates which cut into their profits.
Cramer pointed out that these types of investments often don’t sit well with investors, who can be “short-sighted” and aren’t interested in focusing on long-term growth.
Maloney says that one of the things that differentiate GrubHub is that they operate as a marketplace that sells demand generation. They create partnerships with companies like Yum, which owns Taco Bell, KFC, and Pizza Hut. They also acquired the company Tapingo in an effort to gain access to the college student market.
GrubHub creates interest for these companies and sells access to consumers. Maloney says this is in stark contrast to their competitors, which operate solely as logistics companies.
Maloney believes this strategy will pay off in the long run since the gross margins for being a demand generation company are much higher than for a logistics company.
In spite of Maloney’s optimism, GrubHub’s stock is down nine percent in 2019 and more than 50 percent since an all-time high in September. KeyBanc Capital Markets questioned GrubHub’s ability to keep pace with companies like DoorDash. Again, Maloney didn’t seem concerned about this, adding that it’s “the cost of being public.”