GrubHub short-sellers made $504 million Tuesday when shares fell 42%

  • GrubHub short-sellers made $US504 million when shares of the company fell 42% Tuesday following lacklustre third-quarter earnings, data from financial-analytics provider S3 Partners shows.
  • Wall Street has grown increasingly bearish on the stock over the last month, and at the same time, shorts have boosted exposure to GrubHub, S3 said.
  • “It would not be a surprise if GRUB shares shorted hit a new high by year-end,” said Ihor Dusaniwsky from S3.
  • Watch GrubHub trade live on Markets Insider.

GrubHub short-sellers are having a blockbuster day after the company’s earnings disappointment Monday sent shares tumbling.

Short-sellers, or those who have bet against the stock, made $US504 million on the company’s 42% plunge Tuesday, data from financial-analytics provider S3 Partners shows. That brings mark-to-market profits for the short-sellers to $US874 million for the year.

Short-sellers have made a $US1.2 billion wager against GrubHub, according to S3 Partners, and are up $US460 million in October, including Tuesday’s gain. That’s made it the most profitable short in the internet and direct marketing sector, S3 data shows.

“With today’s windfall of mark-to-market profits we expect more short sellers to belly up to the table and order up more GRUB short sales,” Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told Markets Insider. “It would not be a surprise if GRUB shares shorted hit a new high by year-end.”

GrubHub had struggled to win investor confidence in the lead up to its third-quarter earnings release, when it reported disappointing revenue and lowered its fourth-quarter guidance, showing that it expects weak growth even during the holiday season. Shares had shed 24% this year through Monday’s close, and a number of analysts issued downgrades on the stock earlier in the month, according to TheStreet.

At the same time, short-sellers have been increasing their exposure to GrubHub, Dusaniwsky said. In October, shares shorted grew by 4%, or roughly 770,000. Last week, traders added roughly 200,000 more shares to the short position. That brings the total shares shorted to 20.6 million, roughly 23% of GrubHub’s float.

Among those shorting the stock is Jim Chanos, who announced his bet against GrubHub on CNBC in September. His reasoning: The company makes very little money per order, he told CNBC. Chanos predicted that employee costs will increase while fees will come down, squeezing margins for the food delivery service even more.

Wall Street is also growing increasingly hesitant on GrubHub. On Tuesday, five analysts downgraded shares of the company, according to Bloomberg data. That includes two double downgrades from Bank of America Merrill Lynch and Oppenheimer.

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