Uber (UBER) CEO Dara Khosrowshahi corrected one of his company’s greatest mistakes in 2020. Uber Technologies Inc. (NYSE: UBER) bought Postmates for $2.65 billion in December 2020.
Acquiring Postmates gives Uber back some delivery capabilities it lost when it ended grocery delivery partnerships in 2018. To explain, Uber had grocery delivery partnerships with Walmart (WMT) and other companies between 2016 and 2018.
Unfortunately, Uber was not serious about delivery, which caused Walmart to end its partnership in 2018, Reuters reports. The coronavirus pandemic; however, changed Khosrowshahi’s mind about delivery.
Coronavirus Hits Uber Hard
Numbers, such as a negative revenue growth rate of -29.22% for the quarter ending on 30 June 2020, prompted Khosrowshahi to double down on delivery. To explain, Uber Eats became the only growing business at the ride-share giant.
For instance, business at Uber Eats grew by 53% in the first quarter of 2020, Statista estimates. Uber Eats grew because the coronavirus trapped people at home, yet they still did not want to cook.
Similarly, people were taking fewer Uber rides because COVID-19 closed the places they normally travel to. Those places include; the office, nightclubs, restaurants, sporting events, movie theaters, and theaters. Consequently, Uber reported a $2.9 billion loss and laid off 14% of its drivers in first quarter 2020.
Is Acquiring Postmates a Smart Move for Uber?
Under those circumstances, I think acquiring Postmates was a smart move for Uber (UBER).
For instance, I estimate buying Postmates could give Uber 30% of America’s food delivery market. To explain, Statista estimates Uber Eats had 22% of the U.S. food delivery market in May 2020. Meanwhile, Statista estimates Postmates had 8% of the American food delivery market.
Conversely, Postmates is not prominent as Uber Eats. To elaborate, 3.35 million Americans searched for Uber Eats in April 2020, Statista estimates. However, 1.5 million Americans searched for Postmates in the same months.
However, Uber Eats and Postmates are still far less visible than the two largest food delivery apps. For instance, Statista estimates 9.14 million Americans searched for Instacart in April 2020. Similarly, 7.48 million Americans searched for Doordash in the same month.
Is Instacart more Popular than Uber Eats?
Instacart is more popular than Uber Eats and Postmates because it is in the grocery business. Thus, if Uber wants real growth, it needs to reenter the grocery business.
Obviously, a smart and unlikely move for Uber is to buy Instacart. However, I suspect Instacart is too expensive for Uber. Consequently, I think giant grocers such as Kroger (NYSE: KR) could make an enormous offer for Instacart to keep it out of Uber’s hands. Notably, Kroger is one of Instacart’s principal partners.
I think Uber’s purchase of Postmates is the first step in offering a grocery delivery service. To explain, Postmates has had the experience of making five million deliveries a month in 2020, Business of Apps estimates.
Postmates served 600,000 merchants in 4,200 cities in 2020, Business of Apps claims. Postmates is growing like a weed, Business of Apps estimates Postmates deliveries per month rose from 1.5 million in 2016 to four million in 2018 and five million in 2020.
In comparison, the number of Postmates merchants grew from 250,000 in 2018 to 400,000 in 2019 to 600,000 in 2020. Thus, I think Uber has purchased one of the fastest growing delivery companies. Yet I believe Uber will need to enter the grocery delivery business to survive and make money.
How much Money is Uber Losing?
Uber (UBER) lost enormous amounts of money in 2020. For instance, Uber reported a quarterly operating loss of -$1.263 billion on 31 March 2020.
The quarterly operating loss grew to -$1.607 billion on 30 June 2020. Finally, the quarterly operating loss shrank to -$1.116 billion on 30 June 2020.
Similarly, Uber’s quarterly gross profit fell from $1.757 billion on 31 March 2020 to $989 million on 30 June 2020, to $1.515 billion on 30 September 2020. Overall, Uber’s quarterly revenues fell from $3.543 billion on 31 March 2020 to $2.241 billion on 30 June 2020 and $3.129 billion on 30 September 2020.
In comparison, Uber’s quarterly operating cash flow fell from -$463 million on 31 March 2020 to $1.071 billion on 30 June 2020 to -$406 million on 30 September 2020. Moreover, Uber’s quarterly ending cash flow fell from $9.529 billion on 31 March 2020 to -$1.428 billion on 30 June 2020 to -$335 million on 30 September 2020.
Additionally, Uber is borrowing more money. Uber’s quarterly financing cash flow grew from -$63 million on 31 March 2020 to $118 million on 30 June 2020 to $428 million on 30 September 2020. Plus, Uber’s long-term debt grew from $5.703 billion on 31 March 2020 to $6.69 billion on 30 June 2020 and fell to $6.667 billion on 30 September 2020.
Finally, Uber’s total liabilities fell from $18.062 billion on 31 March 2020 to $18.001 billion on 30 June 2020. However, the total liabilities rose to $19.261 billion on 30 September 2020.
What Value Does Uber have?
Given these numbers, I think Uber will need to grow its delivery business fast to survive. Uber (UBER) still retains some value, however, Uber is losing value.
For example, Uber had $7.504 billion in cash and short-term investments on 30 September 2020. The cash and short-term investments fell from $11.114 billion on 31 March 2020 to $9.662 billion on 30 June 2020.
In comparison, Uber’s total assets fell from $30.09 billion on 31 March 2020 to $28.24 billion on 30 June 2020 to $28.894 billion on 30 September 2020. Hence, Uber has lost value in 2020.
Is Uber a good stock?
Strangely, Uber’s stock price rose as its value and revenues fell. For instance, Mr. Market paid $34.01 for Uber on 10 January 2020 and fell to $31.10 on 11 June 2020.
Conversely, Uber’s share price rose to $58.54 on 12 January 2020 and $57.54 on 14 January 2020. Thus, Mr. Market is paying more money for a company with a declining value. Hence, Mr. Market is insane.
Obviously, I think investors need to avoid Uber (NYSE: UBER) because Mr. Market overprices. Despite the high price, I think Uber could survive and make money in the future. Investors need to watch Uber and use Uber Eats to order dinner, while staying far away from Uber stock.
Originally published at https://marketmadhouse.com on January 12, 2021.