Yesterday, Uber announced an all-share US$2.7bn acquisition of food delivery player Postmates, which will merge with Uber Eats, Uber's food delivery arm. The deal comes shortly after Uber failed to acquire another competitor, Grubhub, which was instead acquired by Just Eat Takeaway, the market leader in Europe, for US$7.3bn.
The Postmates deal is valued at 6x EV/Sales, according to our estimates. The combined Uber Eats-Playmates entity would control 37% of the US food delivery market. It would place Uber (the parent company) just behind the market leader Grubhub (45% market share).
The latest deal has significance well beyond the developed markets of the US and Europe:
The Covid-19 pandemic has increased the attraction of food delivery businesses. While the typical valuation in the industry has ranged from 3-5x P/Sales, at 6x EV/Sales, Uber is demonstrating its hunger for scale in this business.
UberEats has lost 30 cents for every dollar of business in the last three years. Massive cash burn is common in the industry across Developed and Emerging Markets, with only few, such as Meituan-Dianping in China, generating operating profits. However, the market leaders in the West and China have the cash for acquisitions in the fledgling markets and at the same time, loss-making players are looking to increase scale and eventually turn around.
We can therefore expect a series of acquisitions in emerging markets, where revenues are growing even as companies burn cash. We think investors would be well-served to pursue food delivery opportunities in Nigeria, Indonesia, Kenya, Vietnam and Pakistan.