Could Uber buy one of its biggest competitors?
Uber’s stock jumped 3% after unconfirmed reports surfaced Tuesday that it wants to acquire rival Grubhub and become the big enchilada in the food delivery scene.
Uber Eats, DoorDash, Grubhub and Postmates dominate the food delivery industry. DoorDash has 35% of the U.S. market, while Uber Eats is a close second at 32%. Buying Grubhub would allow Uber to claim more than 50% of the market and inch the ride-sharing company closer to finally turning a profit.
“The strategy really makes a lot of sense,” said Wedbush Securities analyst Daniel Ives. “In the post-COVID environment, it would be a notch on the belt for Uber.”
Bloomberg News cited anonymous sources in reporting Uber’s interest in Grubhub, while noting that negotiations could fall through.
Grubhub’s stock rose about 25% Tuesday, which Ives said is a sign that Wall Street believes a deal is possible. It’s unclear how much money Uber, which has a market value of $58 billion, is offering to buy Grubhub, valued at nearly $6 billion.
“It’s a very digestible acquisition for Uber,” Ives said.
Raymond James analyst Aaron Kessler said in a research note that Uber buying Grubhub would reduce competition in the food delivery space and give Uber greater leverage when asking large chain restaurants to join the service. One risk Kessler noted is that there’s no guarantee former Grubhub customers will migrate to Uber Eats.
Uber didn’t respond to requests for comment. Grubhub released a statement Tuesday that neither confirmed nor denied that a deal is in the works. “As we have consistently said, consolidation could make sense in our industry, and, like any responsible company, we are always looking at value-enhancing opportunities,” the company said.
Talk of an acquisition comes less than two weeks after Uber said it would lay off 3,700 employees in its customer service and recruiting departments, citing a plunge in the number of ride-sharing passengers during the coronavirus pandemic. The cuts, which were announced during a three-minute Zoom call to staff, hit about 15% of the company’s full-time workers.
Uber was struggling financially even before the pandemic. The company has racked up three straight years of multibillion-dollar operating losses, according to its annual report. As of January 1, the company had cumulative losses of more than $16 billion.
Uber last week reported that it lost $2.9 billion in the first three months of the year. CEO Dara Khosrowshahi told analysts that COVID-19 has had a dramatic impact on ridership, with trips down around 80% in its global markets last month. A bright spot was Uber Eats, which generated $148 million in earnings.
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