Uber Buys Postmates
On Monday, Uber (NYSE: UBER) announced it would be acquiring the startup food delivery company Postmates. There have been a lot of players in this market, but it looks like it’s starting to consolidate a bit. Uber has the Uber Eats side of its business, and the acquisition of Postmates is only going to expand that segment.
Uber agreed it would acquire Postmates for $2.65 billion. This will easily give Uber a significant chunk of the world’s food delivery market. In recent months, the food delivery market has seen a profit surge thanks to COVID-19. With countries on lockdown, it's been the only way for people to enjoy their favorite restaurants.
Uber, a ride-sharing giant, has been struggling to justify its valuation. Deciding to go in this direction could help it on the path to being profitable. Amid the coronavirus pandemic, people haven't been using Uber for rides since they aren't going anywhere. So the ride-sharing potion of the company’s business was down. In May, Uber posted a $2.9 billion loss for the first quarter of 2020 and announced it would be laying off 14% of its workforce. At that same time, the company's Uber Eats division increased by 53%.
Uber needed to make an important decision about the future of its business: Would it choose what made it famous or did it see more opportunity in the food-delivery market? Taking into account the pandemic and what might happen post-COVID-19, Uber seems to have decided that food-delivery will be a significant part of its business with the acquisition of Postmates. At the end of June, Postmates reported 50% quarter-on-quarter bookings growth. However, without the pandemic, it’s unclear whether the company will be able to maintain that growth, making Uber’s offer appealing.
Postmates co-founder and CEO Bastian Lehmann had this to say:
Over the past eight years, we have been focused on a single mission: enable anyone to have anything delivered to them on-demand. Joining forces with Uber will continue that mission.
There won't be much change for consumers with Uber and Postmates joining forces, but there will be more takeout options to choose from. Uber still needs to decide if it will adopt Postmates' services — like its $9.99-per-month subscription for no-fee delivery on orders over $12. Of course, there are a few more details that Uber will need to iron out to make this deal worthwhile.
Postmates will provide Uber Eats with access to more than 10 million active customers and a significant presence in major U.S. cities like Los Angeles, Las Vegas, Orange County, San Diego, and Phoenix. Some analysts don’t want to speak too soon about the future of the food-delivery market. Before the COVID-19 pandemic, the market was very saturated and viewed as more of a luxury than a necessity. Now with three or so months indoors and restaurants closed for indoor dining, people have grown accustomed to food-delivery apps.
D.A. Davidson analyst Tom White discussed in a recent interview:
This pandemic is probably permanently expanding the size of the online food delivery market. At a minimum, it’s pulling forward a lot of future demand for online food deliveries that was inevitably going to take place over the coming years. This is a good time to try and consummate a deal.
The people who didn’t use apps like Postmates and Uber Eats before the pandemic will most likely continue using those apps as things “return to normal.”
Uber stock closed on Monday at $32.52 — up 6%.
Until next time,