By Imogen Rose-Smith
Just like many who have been stuck at home for the past few months due to the global pandemic, Uber Technologies has been participating in some on-line shopping. In Uber’s case the company has been in the market for partners for its money-losing food delivery business, Uber Eats.
In May, Uber announced that it was considering a deal to acquire Grubhub. The on-line food delivery company, however, shunned Uber’s advances and was acquired by Netherlands-based Just Eat Takeaway.com in June. Just weeks later, however, Uber announced that it had struck a deal to acquire another food delivery service, Postmates. Uber said it expects the $2.65 billion all stock deal to close in the first quarter of 2021. Uber also announced that it had finalized its majority acquisition of Santiago, Chile-based grocery delivery start-up Cornershop and the company could now offer grocery delivery in select markets.
One look at Uber’s balance sheet, and people’s behavior, during COVID lockdown explains Uber’s hunger for the food delivery business. The San Francisco-headquartered company’s main source of revenue is ridesharing. With lockdown, that business is down considerably. Meanwhile, with people stuck at home, there has been a surge in the use of on-line food delivery services. Take-out has functioned as a booming option to meet demand for takeout with both businesses and customers limited in their options to eat out or shop and cook.
The impact of COVID-19 on the ride sharing business was already apparent in Uber’s first quarter earnings. The company, which operates globally, saw its ridesharing revenue grow by 18 percent relative to the first quarter of 2019, but it was down from the last quarter of 2019, and the previous quarter had seen year over year growth of 41 percent and 33 percent. Additionally, the coronavirus only hit the U.S., Uber’s main market, in March of 2020, meaning that a lot of the pain will be felt in Ubers second quarter earnings results.
Uber CEO Dara Khosrowshahi acknowledged the impact COVID-19 was having on Uber’s ridesharing business in the company’s first quarter earnings call. “As the lockdowns began to affect our business in mid-March, we experienced trip and gross bookings declines of nearly 40 percent,” he said. But, while Rides revenue was down 80 percent in April “our total company is only off about 40 percent helped significantly by Eats.”
Uber Eats’ net revenue was up 124 percent year over year, though the division still had an EBITDA adjusted operating loss of $313 million. Khosrowshahi says that, as a result of COVID-19 the “big opportunity that we thought Eats was just got bigger. You can see that from the acceleration of our Q1 growth rates, which actually beat our own internal plans and Q2 growth rates are substantially increased. And then with grocery, we’ve already started with some essentials as it relates to Eats. We’ve got grocery coming in and then we’re developing some new services such as Uber Connect and Uber Direct where retailers can send packages’ ‘.
As Uber hits the accelerator on its delivery business, it has also been consolidating – exiting those markets where it is not among the leaders. So in January it sold its Uber Eats business in India to a competitor, Zomato. And in May the company announced it was exiting seven other markets, closing offices in the Czech Republic, Egypt, Honduras, Romania, Saudi Arabia, Uruguay and Ukraine. Leaving the company to focus its resources on markets where it is most competitive.
Diversifying into delivery has helped Uber manage through COVID-19. Ubers share price is up over 10 percent year to date, aided by a booming U.S. stock market, while its pure transportation competitor Lyft is down 28.7 percent over the same time period. Shares in the big daddy of delivery, Amazon, have risen 70 percent year to date. Right now it’s good to be in delivery.
