We think the deal could strengthen the firm's network effect moat source.
On July 6, (UBER) announced its acquisition of the online delivery service provider, Postmates, for $2.65 billion in an all-stock deal that will likely close in first-quarter 2021. We applaud this move as it will further consolidate the online food delivery market which could lead to pricing stabilization in the long-run. In addition, with Postmates, Uber will increase its lead over Grubhub as the number two player in the space, trailing only DoorDash. Plus, we think this deal could strengthen the firm’s network effect moat source, especially as the ride hailing segment returns to growth after the pandemic. We have not made significant changes to our model and continue to value 4-star Uber at $48 per share.
After the acquisition of Postmates closes, the U.S. online food delivery space will consist of only three major players--DoorDash, Uber Eats, and Grubhub. We think with fewer competitors, more rational pricing will emerge, similar to what was taking place in the ride hailing market prior to the pandemic. With less aggressive pricing, profitability for Uber Eats will become more likely. We continue to expect Uber to become GAAP profitable in 2024.
Based on numbers from Second Measure and Edison Trends, we expect the addition of Postmates to increase Uber Eats’ U.S. market share to over 30%, behind DoorDash’s nearly 45%, and ahead of Grubhub’s 20%-plus. With a larger market share, the supply and demand sides of Uber’s network effect moat source are likely to strengthen and help create synergies which Uber management estimates will result in around $200 million in annual cost savings beginning in 2022.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.