Uber acquires Postmates for $ 2.65 billion. Who wants takeaway food?

Today, Uber agreed to acquire Postmates in an agreement that bets heavily on our collective and continued desire for takeout.

Uber officially agreed on Monday to acquire the new food delivery company Postmates for $ 2.65 billion as the ridesharing company seeks to increase its share of the global food delivery market.

In other words, a large, unprofitable company is buying a smaller, unprofitable company, hoping that our Covid-era eating habits will continue to ring in the distant elusive future, after Covid, therefore, placing both companies on a solid path to profitability.

THE LOGIC OF THE OFFER

Grubhub was taken. It was sold last month to Just Eat Takeaway, a European delivery company for $ 7.3 billion. Uber had made its own attempt to buy Grubhub, but was eventually neglected for price and regulatory reasons. (Uber Eats combined with Grubhub, which merged with Seamless in 2013, would likely have raised antitrust issues.)

Meanwhile, in San Francisco, things looked terrible. As more people followed civic orders to stay home in May, Uber posted a loss of $ 2.9 billion for the first quarter of 2020 and announced that it was laying off 14 percent of its workforce. At the same time, revenue from its Uber Eats division increased 53 percent. “As more people and more restaurants have come to use our services, second-quarter bookings at Uber Eats have increased more than 100 percent year-over-year,” Uber CEO Dara Khosrowshahi said in the press release. from today.

This agreement is the product of the pandemic. Uber now needs positive revenue streams that are not dependent on global mobility. And here comes Postmates, which reports 50% growth in quarterly bookings at the end of June. It is unlikely that Postmates would have seen such quarterly growth without Covid.

It is also a good time from a technological perspective. Uber can use its marketplace technology, including dynamic routing, dispatching, and pricing, to help Postmates sharpen their most valuable skill set: facilitating delivery for nonasociate merchants, which was long considered a competitive advantage in America’s food delivery wars.

For consumers, this deal doesn’t seem to change much, other than the fact that we’ll soon have more food options to choose from (game-time decision: Pad Thai, tacos or Tandoori from that place around the corner … ?) However, today’s release says Uber and Postmates are planning to take over the world, rather than ensuring that our lukewarm Kung Pao chicken arrives at dinner time.

“In the past eight years, we have focused on a single mission: to allow anyone to receive something on demand. Joining forces with Uber will continue that mission …, “said Postmates co-founder and CEO Bastian Lehmann.

As for operational integration, Uber “could” embrace Postmates services, like its $ 9.99 per month subscription that provides free delivery on any order over $ 12, but that’s not guaranteed. When asked if Postmates will adopt Uber’s new “No Mask”. No ride. The policy requiring drivers in the US and Canada to wear masks indefinitely, both companies declined to comment. Each will operate independently through the closing of the deal in the first quarter of 2021.

Assuming that not all of us will stay home forever, how long can this trend continue? Wall Street analysts sidestep this question and instead focus on future fundamentals – how many new markets and demographics can Uber penetrate?

According to Uber’s investor briefing, Postmates gives Uber Eats access to more than 10 million active customers and a “strong presence” in US cities such as Los Angeles, Las Vegas, Orange County, San Diego and Phoenix. In reality, the number of 10 million customers seems overly optimistic, as it includes any customer who has placed at least one order on the platform in the 12 months prior to March 31, 2020.

Not so long ago, food delivery was considered completely saturated, given the fierce competition between Uber Eats, Grubhub, DoorDash, and Postmates, which provide essentially the same service. But that status quo is beginning to change, as consolidations like today’s deal promise to squeeze the profits out of new Covid-era customers.

“This pandemic is probably permanently expanding the size of the online food delivery market. At the very least, it is driving a huge future demand for online food deliveries that will inevitably take place in the coming years, “DA Davidson analyst Tom White told Bloomberg earlier this month, adding:” This is a good time to try and consummate a deal. ”

The pandemic has us forming new habits, affecting the way we dress, how we choose to move (if we do), and even the way we eat (it’s pizza night! … again). From Uber’s perspective, if many of us go back to the precovid kitchen or go out to dinner it’s almost In addition to the point. This new deal is a bullish gamble that encompasses the American population that did not use online delivery before Covid continues to use these services in the future, now that they have put so much trust in it. Humans We are creatures of habit.

IS IT GOOD FOR RESTAURANTS?

Today’s acquisition promises to help strengthen delivery networks by offering merchants the “ability to add delivery capabilities to their websites and applications and fulfill orders on demand.”

And that? While many restaurants already rely on third-party delivery for a significant portion of their revenue, the rates and commissions that delivery companies charge, ranging from 20% to 40%, often swallow most of the restaurant profits.

As the pandemic has so painfully revealed, the ability to switch from food to takeaway services has not been enough to stop restaurants from closing across the country. Until the Uber Eats-Postmates partnership proves otherwise, there is no indication that restaurants will benefit from this deal significantly.

As for Uber, things are getting better, at least on paper. Its shares closed at $ 32.52 on Monday, up 6% on the day.