Posted on 07/06/20
| News Source: MATZAV
Uber is acquiring food delivery app Postmates, a major coup for the ride-hailing company as it aggressively expands its second largest business offering, Uber Eats, amid a global pandemic that has cut sharply into trip revenue.
The $2.65 billion all-stock deal announced Monday streamlines the industry to three major competitors: Uber, DoorDash and Grubhub. In a Monday conference call announcing the deal, Uber chief executive Dara Khosrowshahi said there is “plenty of room” for three players in the U.S. delivery market, and that the Postmates deal would allow Uber Eats to become more efficient, lower costs and increase options for customers.
“We can use some of the learnings of their system and put it on top of our system in order to build a better service overall,” Khosrowshahi said.
The deal comes after weeks of speculation that Uber was in talks to acquire a rival food delivery app after it first expressed interest in Chicago-based Grubhub. That possibility was put to rest last month when the app company was bought by Netherlands-based Just Eat Takeaway in a deal valued at $7.3 billion, far more than Uber is paying for the much smaller Postmates.
Postmates, an early pioneer in delivery, has fallen behind in the crowded field. Although it has performed well in certain cities such as Los Angeles and Miami, it captured only 10% of food deliveries in the first quarter of 2020, according to Dan Ives, an analyst with Wedbush Securities. With Postmates under its belt, Ives estimates Uber Eats will control about a third of the delivery market – far behind DoorDash’s 44%.
In a commentary Monday, Ives called the acquisition a “smart strategic fit” presenting fewer regulatory red flags than the collapsed Grubhub deal would have.
“Clearly this is an aggressive move by Uber to take out a competitor on the Uber Eats front and further consolidate its market position,” Ives wrote. “Especially as the COVID-19 pandemic continues to shift more of a focus to deliveries vs. ride-sharing in the near-term.”
Food delivery has become a particularly important market for Uber during the pandemic, as the rides business has nearly evaporated in the markets hit hardest by the coronavirus. On the conference call, Khosrowshahi contrasted the growth of Uber Eats to the sharp decline in rides during the pandemic: While ride bookings tumbled 60% year-over-year, food delivery bookings surged 100 percent.
“We’re in the unique position of having the Eats business significantly offset headwinds in our Rides business,” Khosrowshahi said.
Uber Eats grew to make up a quarter of the company’s gross bookings at the end of last year, but at a cost: It burned through large sums of money as it pushed discounts and incentives to lure customers and drivers.
As the major players prioritized aggressive marketing, expansion and convenience in an attempt to pick off customers from one another and attract drivers and restaurants, they haven’t made profitability a priority. Analysts have said the market has yet to prove itself a moneymaker, much like the early days of ride-hailing when Uber and Lyft offered massive discounts and larger payouts to attract riders and drivers.
On the conference call, Khosrowshahi praised Postmates’ “scrappy brand” and strong relationships with top local restaurants, and said the company’s emphasis on deliveries from stores and pharmacies, in addition to food delivery, allowed it to attract a diverse array of offerings on the platform. He said adding Postmates’ portfolio to Uber’s existing service brings the company closer to becoming the Amazon of transportation.
“The vision for us is to become an everyday service,” he said.