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USA Economics Breakingviews – Uber’s Postmates deal will barely touch the sides – Reuters


USA

USA Economics Breakingviews – Uber’s Postmates deal will barely touch the sides – Reuters

Delivery bags with logos of Uber Eats are seen on a street amid the outbreak of the coronavirus disease (COVID-19) in central Kiev, Ukraine May 27, 2020. REUTERS/Valentyn Ogirenko NEW YORK (Reuters Breakingviews) – There are three good things about Uber Technologies’ purchase of Postmates. First, it removes a competitor from the food delivery market.…

USA Economics Breakingviews – Uber’s Postmates deal will barely touch the sides – Reuters

USA Economics

Delivery bags with logos of Uber Eats are seen on a street amid the outbreak of the coronavirus disease (COVID-19) in central Kiev, Ukraine May 27, 2020. REUTERS/Valentyn Ogirenko

NEW YORK (Reuters Breakingviews) – There are three good things about Uber Technologies’ purchase of Postmates. First, it removes a competitor from the food delivery market. Second, it looks cheap in light of the amount of cost Uber boss Dara Khosrowshahi thinks he can cut. And while at $2.7 billion the deal is pretty small, that makes it an amuse-bouche sized test of how regulators will respond to the $55 billion ride-hailing firm’s future acquisitions.

Uber agreed on Monday to buy Postmates using stock at roughly a 10% premium based on the target’s valuation when it last raised money in September, according to Reuters. The secret sauce is $200 million in cost savings achieved by slashing overhead, sales and marketing even though Uber is keeping the Postmates brand. That represents more than half of the deal’s value – some $1.6 billion once taxed and capitalized.

Financial logic aside, the deal will hardly touch the sides. But that might be the point. Lawmakers in California, where Postmates is a strong player, might want to take a close look at the deal’s effect on competition. Overall, though, the tie-up is less threatening than if Uber were to buy either of Postmates’ larger rivals, Grubhub and DoorDash. Postmates has only 8% share of the national market, according to data from Second Measure; Uber has 22%. 

What this won’t do, therefore, is change the woeful economics of food delivery. Uber Eats lost more than $300 million in EBITDA, adjusted for stock compensation, in the first quarter – and Postmates is also loss-making. But if all Khosrowshahi gains is a little market clout, ensures Postmates doesn’t get swallowed by a rival, and gets more insight into how regulators behave when he attempts to beef up, then this still looks like a decent appetizer.

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Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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