Los Angeles Times: Uber bets Postmates deal will be path to profitability

July 6, 2020 Media

Neither Uber Technologies Inc. nor Postmates Inc. is profitable. They’re hoping that a combination of the two businesses will somehow get them there.

Uber said Monday it will spend $2.65 billion for San Francisco-based food delivery company Postmates. The all-stock transaction is a bid to accelerate a path to profitability set by Uber Chief Executive Dara Khosrowshahi and deliver growth rates once typical of Uber’s ride-hailing operation. Both aspects of that strategy rely on food delivery, which has gotten a boost from the COVID-19 pandemic.

The deal is a relatively modest outcome for Postmates, a pioneer of the gig economy that was outmaneuvered by deep-pocketed competitors. The privately held company had been valued at $2.4 billion in an investment last year, a person with knowledge of the matter said at the time.

An acquisition of Postmates is less likely to raise regulatory scrutiny because it wouldn’t change the market as much. Postmates, a distant fourth, would give Uber a firm lead over Grubhub, but the combined company would still trail SoftBank-backed DoorDash Inc., the nationwide leader. Postmates would strengthen Uber’s position in Los Angeles and the American Southwest, two markets where the brand is strongest.

Still, the deal has drawn some criticism. “Uber and Postmates’ business model is built on the exploitation of restaurants, workers and consumers,” said Sarah Miller, executive director of the anti-monopoly group American Economic Liberties Project. “The Federal Trade Commission should refuse to rubber-stamp this power grab.”