Last Monday, Uber (NYSE: UBER) made a big announcement.
It bought the food delivery startup Postmates for $2.65 billion in stock. Postmates was the fourth-largest U.S. food delivery company. This wasn’t the first time Uber sought to purchase another food delivery company. It was only about a month ago that there were rumors of Uber acquiring Grubhub.
It’s probably best that those talks didn’t work out since that acquisition could have paved the way for regulatory scrutiny. At the beginning of the coronavirus pandemic, something came to Uber’s attention: While no one was hailing rides, people were ordering food. In May, Uber posted a $2.9 billion loss for the first quarter of 2020 and announced it would be laying off 14% of its workforce. The company needed to go in another direction and focus on what was bringing in money — its Uber Eats division.
The food delivery market had been growing, but it surged once the coronavirus hit. It was the only way people could enjoy their favorite restaurants in a relatively safe way. Before the pandemic, a lot of people had heard of apps like Uber Eats, Grubhub, Postmates, and DoorDash but they hadn’t personally used them. COVID-19 allowed for those people to grow accustomed to the ease and convenience of those platforms.
According to a report from Business Wire, the global market for online food delivery services was expected to grow from $107.44 billion in 2019 to $111.32 billion by 2020 at a growth rate of 3.61%. The report also projects the market to grow to $154.34 billion by 2023 at a CAGR of 11.51%.
This is the year that companies will really start to compete in this market — and determine a leader. Uber could be one of those market leaders as long as it stays focused and becomes profitable. In Uber’s first-quarter earnings call, the company said gross bookings revenue for its rides segment was down 80% in April from a year earlier, while its gross bookings revenue for Uber Eats was up more than 50% during the same period. Having both ride-hailing and food delivery pick up would prove the company’s sustainability to investors.
Before this deal with Uber, Postmates was considering going public itself. According to Reuters, the company was valued at $2.4 billion in its last fundraising round in September 2019. Postmates has a lot of impressive features; it has an extremely efficient platform that has combined merchant and delivery into a network. The company has been successful in popular cities like Los Angeles, Las Vegas, San Diego, and Phoenix. Uber now has a stronger advantage in its market thanks to this acquisition. The company has its eye on the prize of being a massive food-delivery company.
With that being said, Uber shouldn’t count all its chickens just yet. DoorDash, another major name in the on-demand food delivery market, has had its eye on an IPO since early this year — before the pandemic and lockdown.
DoorDash has confirmed that it’s raising “approximately $400 million” in a Series H round of funding. This comes after a Series G funding in late 2019 that earned the company close to $13 billion. DoorDash filed to go public earlier in the year (around February) but with COVID-19 and market volatility, those plans have been pushed back. Despite those uncertainties, the company is still earning a massive amount of funding from private investors. It appears to have a valuation of around $16 billion ahead of its IPO and is backed by SoftBank Group.
Just like Uber, DoorDash has benefited from the coronavirus pandemic, as consumers have been forced to stay home and order food and groceries online. Recently, the company launched its DoorDash Storefront which allows restaurants to build their own online stores that give customers the option of ordering food online from that specific restaurant from its “storefront.”
So far, the company has around $2.5 billion in total funding and is rapidly growing, with the recent surge in restaurant delivery during lockdowns. However, it’s worth noting that the company has been losing money. In 2019, it lost $450 million on revenue of $900 million. In addition to losing money last year, the company is dealing with a class action lawsuit for exploiting dominance in meal delivery services with high fees. So DoorDash is not without its problems, but it is in position to continue to compete with Uber.
For more updates on DoorDash and its possible 2020 IPO, click here.
Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
