Yves here. Although this post does not answer the headline question, about how deep the Uber money pit will prove to be, it is gratifying to see more commentators taking up Hubert Horan’s skepticism about the local transportation company and focusing its continuing-to-be-Gawdawful cash flow prospects. I’m still amazed after extension gimmicks like scooters proved to be a bust, that investors somehow are convinced that combining two deeply unprofitable businesses with illusory synergies makes any sense.
By Michael Scott, a news editor for Safehaven.com and Oilprice.com. Originally published at SafeHaven
Eternally unprofitable and burning cash because the name of the game is now consolidation or bust, Uber has made an offer to buy rival food delivery company Postmates as the mobility war intensifies.
As it stands, ride-hailing alone isn’t going to cut it, and investors still seem to not be shying away from a company itself it has admitted may never be profitable.
CIting unnamed sources close to the deal, the New York Times says Uber has made a $2.6-billion takeover offer for Postmates delivery service, with talks still ongoing and neither party willing to make any comments on the potential deal.
While Postmates could give Uber Eats a boost because it’s all about a spending spree to gobble up market share right now, it’s not Uber’s first big deal dreams in recent months. In other words, they’re only interested in growth prospects right now.
Just a month ago, Uber was prepared to pay a premium for the Grubhub–the delivery service with the biggest US market share. That deal fell through because Grubhub was instead acquired by Netherlands-based Just Eat Takeaway in a $7.3-billion deal.
But not even food delivery is profitable at this point, despite the fact that demand is soaring due to the coronavirus lockdown.
While demand soars, with Uber Eats posting $4.68 in gross bookings last quarter, investors don’t even care if there’s still no profit, or if restaurants are balking at the exorbitant costs of joining in. All they care about is the company that can steal the most market share when the segment finally figures out how this should all work.
In the early March, when a national emergency was declared in response to the COVID-19 pandemic, overall food delivery industry sales increased by 51% from the week prior. In April, third-party delivery orders were up 204% in versus April 2019. In May, nearly 30% of American consumers had ordered from one of the food delivery services.
For now, the industry leader is DoorDash with 44% of U.S. consumers’ meal delivery sales in May, followed by Uber eats with just over 23%. Grubhubcame in just under 23% of U.S. meal delivery consumer spending, while Postmates grabbed 8%.
DoorDash just raised $400 million in a funding round that valued it around $16 billion.
That’s why Grubhub was Uber’s first choice, and PostMates, with a valuation of $2.4 billion, was only second.
The Grubhub deal would have created the country’s biggest food-delivery service and would have given the combined companies control over a majority of the U.S. food delivery business.
According to Uber’s latest earnings, its ride-hailing business lost nearly $3 billion in the Q1. During the same period, the company’s food delivery segment had a gross booking of $4.68 billion, up from $3.07 billion in the year-ago quarter, or 52%.