May 12—Uber made an offer to acquire food delivery service Grubhub, reports The New York Times. Bloomberg notes the two corporations’ discussions could result in a deal announcement as soon as this month.
Why Uber Wants to Buy Grubhub
The online rideshare service wants to acquire the food delivery firm to revive its flagging business.
The coronavirus pandemic has caused Uber to experience an 80 percent decrease in its core ride-hailing revenue. Last week, the corporation laid off 3,700 employees, 14 percent of its workforce, in a cost-cutting measure. The firm also transferred ownership of its Jump electric scooter subsidiary to Lime as part of a new investment deal.
Though it reported a $2.9 billion loss in its first-quarter earnings report, the company’s filing featured one bright spot: Uber Eats. The corporation’s food delivery unit brought in $4.68 billion, up 54 percent from Q1 2019. The segment saw a 70 percent surge in orders because government lockdown mandates have temporarily ended dine-in service around the world.
While food delivery is not as lucrative as personal transportation for Uber, its spike in popularity represents a way forward for the beleaguered firm.
Furthermore, Grubhub has characteristics that make it an ideal target for acquisition. In the first quarter, the firm reported having 23.9 million active users so a buyout will provide Uber with a lot of valuable consumer data. Plus, an all-stock deal would not require the ride-hailing company to increase its $5.7 billion debt load.
Why Grubhub Should Accept Uber’s Offer
Despite being the only American food delivery company to record a profit, Grubhub has not been doing exceptionally well.
At present, the online takeout service only operates within the United States, which is a highly competitive market. TechCrunch reports the firm has a 28 percent market share compared to DoorDash’s 40 percent. Besides, the corporation’s core business, though popular, is not exceptionally lucrative.
The firm’s tight profit margins and growth struggles reportedly prompted its leaders to seek a strategic tie-up in January.
In addition, the coronavirus pandemic has not been as beneficial for the food delivery service as one might think. Last quarter, the firm recorded a net loss of $33.4 million, down from the $6.89 million it made during the holiday season. Because Grubhub derives most of its revenue from office workers, the company experienced a double-digit decline in orders during Q1.
However, Uber managed to make food delivery work during COVID-19, likely due to its diverse array of services. By merging with the ride-hailing company, Grubhub could bring its business model into maturity. Also, the two corporations’ combined market share would equal 48 percent, which would make it the new industry leader.
Given its uncertain prospects, Grubhub would be well-served by accepting Uber’s takeover offer. Simultaneously, Uber might finally achieve profitability by consolidating the food delivery sector.