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Uber to buy startup Postmates to extend delivery footprint

Uber to buy startup Postmates to extend delivery footprint A deliveryman for Uber Eats rides a bike in Paris during a lockdown imposed to slow the spread of the coronavirus disease (COVID-19) in Paris, France, on April, 1. Uber said Monday it was buying delivery startup Postmates for US$2.65 billion in stock. (REUTERS/Gonzalo Fuentes)
Rob Lever
Washington, United States   ●   Tue, July 7, 2020 2020-07-07 10:12 309 6657ac82168da9fa101c8a4066460c2d 2 Business Uber,ride-hailing-application,delivery-service,food-delivery,postmates,startup Free

Uber said Monday it was buying delivery startup Postmates for US$2.65 billion in stock, in a move shaking up the sector which has seen surging growth during the coronavirus pandemic.

The acquisition steps up the effort by the ridesharing giant to diversify its business to meet growing delivery demands after failing to win a battle for United States meal delivery giant Grubhub.

"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 chief executive Dara Khosrowshahi said in a statement.

Khosrowshahi told analysts on a conference call he expects the takeover will "drive significant efficiencies and cost savings" and help "offer wider selection at lower prices for consumers."

He added that the deal would also "accelerate the path to profitability" for Uber, which reported widening losses in the first quarter of 2020 as the pandemic hit its rideshare operations but saw booming demands for meal delivery.

Postmates, a startup specializing in delivery of food, groceries and other goods, will be integrated into Uber Eats, which has seen its business double during the global health crisis.

The San Francisco rideshare giant made an unsuccessful $6 billion bid for Grubhub, which ended up merging with Dutch-based Just Eat Takeway.

Postmates holds about eight percent of the US food delivery market, making it the number four operator behind DoorDash (with 45 percent), Grubhub (23 percent) and Uber Eats (22 percent), according to the research firm Second Measure.

San Francisco-based Postmates, which reportedly had been on track for a public share offering this year, has also been testing robot delivery, tieing in with Uber's efforts to develop autonomous technology.

'Aggressive move'

"Clearly 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," said analyst Daniel Ives of Wedbush Securities.

Ives called the deal "both a defensive and offensive acquisition in the food delivery space for Uber at a time with its core ridesharing business seeing massive headwinds in this COVID-19 pandemic."

Independent analyst and investor Benedict Evans said that in the low-margin food delivery business "reducing capacity and bolting customer pools together (hence paying in stock) instead of fighting for them has obvious logic," but added: "You still need the underlying unit economics to work."

The companies said the boards of both firms approved the transaction, and that they expect to close the deal pending regulatory approval early next year.

Postmates co-founder and CEO Bastian Lehmann said the tie-up would create a stronger player in the delivery segment.

"Over the past eight years we have been focused on a single mission: enable anyone to have anything delivered to them on-demand," he said.

"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."