On Monday, Uber announced that it is planning to buy the food delivery startup Postmates. It is buying the company in an all-stock deal worth $2.65 billion.
However, Uber is acquiring Postmates to cope up with the losses caused by the coronavirus pandemic. And make its business in a better financial position.
Uber’s food delivery service is blooming since March. When its core taxi business was at a halt due to lockdown and its demand was dropping globally. The company was mainly earning and from its delivery service, Uber Eats during the pandemic.
The Beneficial Merger
Uber Eats merged with Postmates would help Uber to chase the market leader, DoorDash. It will bring the market share of Uber after combining with Postmates to about 30%. However, DoorDash is leading the industry with about 45% market share.
Moreover, shares increased as much as 9% in early trading Monday after the announcement.
“Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery. They can be a hugely important part of local commerce and communities, all the more important during crises like COVID-19,” Uber CEO Dara Khosrowshahi said in a press release.
In addition, he said, “As more people and more restaurants have come to use our services. Q2 bookings on Uber Eats are up more than 100 percent year on year.”
“We’re thrilled to welcome Postmates to the Uber family. As we innovate together to deliver better experiences for consumers, delivery people, and merchants across the country.”
Uber’s Other Acquisitions
Every now and then Uber is trying to acquire smaller food delivery companies in many markets. Most recently, it was negotiating with Gurbhub but failed to acquire it. As it was in talks with Europe’s Just Eat and was acquired by it in June.
However, in 2018 Uber also held talks with the UK’s Deliveroo, but the two companies could not agree on a price. In 2019, it struck a deal with the Chilean grocery-delivery firm Cornershop, which should close soon.
“This is an aggressive move by Uber to take out a competitor on the Uber Eats front and further consolidate its market position. Especially as the COVID-19 pandemic continues to shift more of a focus to deliveries vs. ride-sharing in the near-term,” Dan Ives, an analyst at Wedbush Securities, said. They are expecting to close the company in the first quarter of 2021. As approval is pending from the US regulatory agencies and Postmates shareholders.
Uber said its eats business had become profitable on an EBITDA basis, an adjusted financial metric, in many markets. However, Uber will be able to significantly cut costs by this combined business Khosrowshahi said. Also, it will help the company reach overall profitability, which it has never achieved before. The customers will have to use Postmate’s own consumer app, and Uber declined to share any details on the company’s finances.
Uber specifically cited a strong user base of young people and millennials on Postmates that it stood to gain as part of the deal.
However, the founders of Postmates were Bastian Lehmann, Sam Street, and Sean Plaice. It was founded in 2011 and serves the US and its headquarter is in San Francisco.
“Over the past eight years we have been focused on a single mission: enable anyone to have anything delivered to them on-demand,” Lehmann, the company’s CEO, said in the press release.
“Joining forces with Uber will continue that mission as we continue to build Postmates while creating an even stronger platform that brings this mission to life for our customers. Uber and Postmates have been strong allies working together to advocate and create the best practices across our industry, especially for our couriers.”