After months of scouring the food delivery space for a deal, Uber finally found its target, adding Postmates to its digital empire in a deal announced early Monday.
The deal, announced before the Monday morning market open on July 6, has Uber ($NYSE:UBER) buying Postmates ($POSTMATES) in a deal valuing the latter at less than $2.7 billion, possibly a sign that investors' eagerness to push money into delivery apps is beginning to wear thin.
Like so many other white-hot Silicon Valley apps, Postmates' trajectory was soaring pre-Coronavirus, but even in late 2019 - around the same time other apps like WeWork and Uber began to see valuations decline - Postmates reduced job postings substantially. More recently, they've doubled off 2020 lows, but still have more to climb to gain past momentum.
Based on Postmates' prior rounds of funding, as well as its valuation, Uber isn't exactly paying a juicy premium to acquire it. A wide range of backers in the company put nearly $1 billion into the startup, at a valuation most recently tagged at nearly $2.3 billion, meaning that Uber's deal to buy it represents a premium little higher than 10%. And, since Uber is buying Postmates in an all-stock transaction, Postmates investors' returns are now hitched to the ridesharing company's broader performance. Postmates investors include General Catalyst, Spark Capital, and BlackRock, among others.
It took a while for hiring to rebound with Postmates - not so for its Apple Store Ratings data. There, we see a 40% rise in ratings submitted this year, a high level of engagement. Further, with a rating higher than 4.8-out-of-5, Uber is adding to its portfolio a well-liked delivery app that will serve as a standalone business from its existing Uber Eats platform, according to initial reports.
But Uber, Postmates, Grubhub, and everyone else in the space still has a big challenger to contend with in DoorDash. The all-things-delivery-app will bring you a hot meal but it'll also get you groceries, and has been enjoying increased engagement with consumers for months. DoorDash, which was rumored to be exploring an initial public offering pre-Coronavirus, took on more funding lately - but with consolidation settling the delivery space, that IPO could still be in the offing soon. Doordash is hardly the only delivery app getting higher valuations in a turbulent market - investors also recently clamored to pour more money into Instacart, at a whopping $14 billion valuation. DoorDash's most recent funding hit $16 billion, putting into perspective Postmates' market position.
Uber's first attempt at tucking in takeout failed, and GrubHub instead sold to Just Eat ($LON:JE), creating a trans-national partnership of delivery apps that showcased strengths on multiple continents. But the Postmates deal gives it the opportunity to better take market share in the US, in turn, better positioning it against the world's largest competitors and in key markets. Above, we track the combined footprint this M&A transaction creates.
Further, as we continue to see mounting evidence that dining out - at least, doing so indoors - will remain unsafe for months to come, at minimum, the deal to double down on food delivery helps distance Uber from its core ridesharing business, which is said to be doing poorly. The 9% increase priced into Uber shares Monday morning July 6 before the market open is enough to catapult its stock back into the black for 2020, in a year that has proven turbulent and painful for many other players in the space. But what remains to be seen is whether it can consolidate food delivery and do so successfully, or if Uber's slick app and marketing will fall short in an increasingly crowded marketplace.
About the Data:
Thinknum tracks companies using the information they post online - jobs, social and web traffic, product sales, and app ratings - and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.