Why Does Uber Want To Buy Postmates?

[Updated 7/1/2020]

Uber (NYSE:UBER) has reportedly made an offer to acquire Postmates, a smaller rival to its food delivery service, Uber Eats, for about $2.6 billion. ^[1] While the delivery space has been a bright spot for Uber through the current Covid-19 pandemic, as people have embraced online ordering and food delivery apps, the Eats business remains deeply loss-making posting an EBITDA of -$313 million, on revenues of about $819 million in Q1 2020. By acquiring Postmates, Uber could cut its losses and gain pricing power in an intensely competitive delivery market.

For a deep dive on the numbers for the Uber Eats business, view our dashboard analysis How Uber Eats Is Helping Uber’s Stock

Although Postmates is the smallest among the major U.S. food delivery players, with a market share of about 8% of the U.S. meal delivery market as of May 2020 versus about 23% for Uber Eats, consolidating the businesses should help to cut administrative and technology-related costs. Uber could also have better pricing power (lower discounts, incentives) by effectively eliminating a competitor. However, even with a potential deal Uber would still remain second to DoorDash and its subsidiaries which held about 44% of U.S. meal delivery sales as of May. ^[2]

Interested in investing in the ride-sharing space? We think Lyft might offer a higher upside compared to Uber, as we detain in our analysis Is Uber Expensive Or Cheap vs. Lyft?

[Updated 8/29/2019]

Uber’s (NYSE:UBER) food delivery service, Uber Eats, is the company’s fastest-growing business. In this analysis, we take a look at how Uber Eats has grown and whether it could emerge a key driver of Uber’s valuation.

View our interactive dashboard analysis on How Uber Eats is Helping Uber’s Stock.

#1 Uber’s Fastest-Growing Business

#1.1 Uber Eats Accounted For 13% Of Uber’s Revenues In 2018, Up From 3% In 2016

• Uber Eats’ reported revenues grew by 148% in 2018 to about $1.5 billion.
• In comparison, the company’s bread-and-butter ride-sharing revenues grew by about 33% over the same period.
• Uber Eats revenues as % of Uber’s total revenues have expanded from 2.7% in 2016 to 13% in 2018.

#1.2 Eats Net Revenues Grew By ~150% Over 2018, Versus 33% For Ride Sharing

#2. However, Growth In Some Core Metrics Is Slowing Down

#2.1 Net Adjusted Revenues Growth Is Slower, Due To Higher Incentives

• Gross bookings – which represents the total dollar value of meal deliveries to customers – has been growing fast, rising to $3.4 billion in Q4 2018.

• However, Net adjusted revenues have grown at a slower pace, up 43% YoY over H1 2019, vs. Gross Revenues, which almost doubled.
• Net adjusted revenues are calculated adjusting for Driver and restaurant earnings, Driver incentives, and Driver referrals.

#2.2 Take Rates Have Also Trended Lower

• Take Rates, which are defined as Adjusted Net Revenue as a percentage of Gross Bookings have also generally trended lower, likely due to higher incentives.

Uber Eats May Not Be A Big Driver Of Uber’s Valuation

• While Uber doesn’t break down the expenses or margins of its Eats business to enable us to estimate its valuation, we believe that the division will not be a major driver of Uber’s valuation in the long-run.
• For instance, Grubhub which held about 33% of the U.S. food delivery market in June 2019 had a market cap of under $6 billion. In comparison, Uber held less than 17% of the U.S. market.
• While Uber also operates its Eats business overseas, unlike Grubhub, which is U.S. only, it’s probably safe to assume that Uber Eats won’t have a much higher valuation.
• Uber also indicated in its Form S-1 that its addressable market in its core-ride sharing business was over 3x the food delivery space, meaning the long-term potential may also be less.

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1. Uber in Talks to Buy Postmates for About $2.6 Billion, WSJ, June 30, 2020 [↩]
2. Which company is winning the food delivery war?, Second Measure, June 2020 [↩]