Uber Buys Postmates in Food Delivery Bet

The $2.65 billion deal will expand Uber's delivery business as its core ride-sharing service sees "massive headwinds" due to COVID-19.
Matthew HellerJuly 6, 2020
Uber Buys Postmates in Food Delivery Bet

Uber said Monday it had agreed to buy Postmates for $2.65 billion, making a major move to expand its ride-sharing business amid declining demand for ride-sharing.

The announcement of the deal comes a month after Uber failed in its bid to buy rival GrubHub, which was instead sold to European delivery giant Just Eat Takeaway for $7.3 billion.

The combination of Uber Eats and Postmates would create the second-largest U.S. food delivery company with a 37% share of sales. DoorDash would remain the largest player with 45% while Grubhub would have 17%.

Postmates, which was founded in 2011, is the smallest of the Big Four in the market but it operates in thousands of cities across the U.S. and has a strong presence in big markets including Los Angeles, Las Vegas, San Diego and Phoenix.

“We’ve always admired Postmates, I guess, begrudgingly from afar in that it was a competitor who was able to compete aggressively and to be a leader in some very important markets with a much smaller capital base than a lot of its competition, including ourselves,” Uber CEO Dara Khosrowshahi said on a conference call Monday to discuss the deal.

In trading Monday, Uber shares rose 5.2% to $32.26.

The deal is a “defensive and offensive acquisition in the food delivery space for Uber at a time with its core ride-sharing business seeing massive headwinds in this COVID-19 pandemic,” Daniel Ives, an industry analyst with Wedbush Securities, said in a research note.

As The New York Times, Uber is “looking for growth as people stay home during the pandemic and its ride-hailing business struggles.” According to Khosrowshahi, the rides business was down about 80% in the month of April.

But revenue from Uber Eats rose 53% in the first quarter and bookings more than doubled from April through June.

Postmates, like other food delivery apps, has grown rapidly in recent years, reaching $107 million in revenue in the first quarter. But according to the Times, “the apps offer very similar services, leading to heavy competition and pressure to keep fees low. While more people have been using delivery services during the pandemic, profits have been elusive.”

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