Here’s why Uber buying Postmates could be a win-win for everyone involved

source
Thomson Reuters

  • Uber‘s rumored interest in buying Postmates could help bring food-delivery closer to a profitable business, according to a new report from Needham & Company.
  • PostMates has explored the possibility of a sale to both Uber and DoorDash, rather than going public, according to a Recode report from last week.
  • Needham says such an acquisition would help improve the struggling unit economics in the food-delivery business by raising the lifetime value of each customer.
  • Watch Uber trade live.

Rumors swirled last week that ride-hailing giant Uber was in the market to acquire Postmates, a food delivery service.

Recode reported the news that Postmates was exploring a sale to a larger rival in the place of its expected 2019 IPO, with Uber being an interested buyer.

According to a new report from Needham & Company, if Uber did acquire Postmates, it could offer a boost to the whole food-delivery industry.

“We think that UBER would desire a lower price than the one Recode reported but also that Postmates 10% market share means that everyone’s unit economics would stand to improve from such a move as it would raise marginal customers’ LTVs (life-time value) in the space.” Brad Erickson, an analyst at Needham said in a note to clients on Monday.

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Unit economics, or the revenues and costs associated with a business model on a per unit basis, have been a consistent point of criticize for not only ride-hailing, but for food delivery as well.

Right now there’s about six major food delivery companies including UberEats, DoorDash, GrubHub, and Postmates competing for market share. Many of these services offer discounts and deals to pull customers from competitors.

According to Erickson, the lack of brand loyalty in the space “suggests consolidation is necessary.”

“We heard growing feedback suggesting customers are being increasingly lured by persistent promotions,” he said. “This seemed particularly interesting given Recode’s recent article portending potential industry consolidation.”

Food delivery has been viewed as an important business line for Uber’s future as it attempts to leverage the massive platform it’s built in order to ultimately become profitable. Erickson estimates UberEats generated between $4.15 billion and $4.25 billion in bookings in 2018 compared to $1.9 billion to $2.1 billion in 2017.

Recode also reported that Postmates held conversations with DoorDash and Walmart.

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