GrubHub, after a rough earnings report Tuesday, saw its stock fall more than 40% in one session, and it’s largely stayed down around $33 this week.
“For months, I’ve been warning you away from this one and the whole food delivery business,” the “Mad Money” host said, attributing his bleak outlook to intense competition in the space.
That’s why he wasn’t surprised at all, he said, but “what shocked me was how Wall Street analysts had taken the wrong side of the trade here.”
Cramer found “no fewer than a dozen downgrades on Tuesday and into Wednesday.” Only one of the roughly 30 analysts who cover the company had a sell rating going into the quarter, Cramer said.
“Some of the price target cuts were downright comical, to be honest. Mizuho going from $100 to $35. They loved this stock in the 50s, they hate it in the 30s,” he said.
Cramer said the overestimation from the analysts stems, largely, from two factors: too much trust in management and an incomplete grasp of consumer behavior in the food delivery category.
On GrubHub’s earnings call, leadership said an increasing lack of loyalty from users — basically, people also ordered food from competing services such as Postmates and UberEats — led the company to massively cut its forward guidance.
Management acted like it had just realized the threat posed by well-funded competitors, who don’t mind spending heavily in an attempt to capture market share, Cramer said.
“Where do I even start? For years, GrubHub had no serious competition — of course their customers used to be loyal, they didn’t have a choice,” Cramer said. “That’s no longer the case.”
Many analysts appeared to share in the surprise, said Cramer, who noted he’s familiar with the food industry because he co-owns two restaurants.
“The most common refrain here is that the industry’s much more competitive than they’d been led to believe. It’s like they’d never used these online delivery services,” Cramer said. “Anyone who’d been paying any attention at all could tell this was coming.”
There is an important lesson to be found in GrubHub’s tough week, Cramer said.
“Sometimes what you see in your day-to-day life, what your eyes see, is far more helpful than what you hear from the analysts on Wall Street,” he said.
“When it comes to online delivery, Postmates, Uber Eats and DoorDash, they’re everywhere, and they’re offering great deals,” Cramer said. “You only had to use their services and believe your own eyes, rather than listening to GrubHub’s clueless management team and their equally deluded analyst acolytes.”