🚕🛵 Can Uber's Delivery Business Turn Profitable?

Victoria's Secret's loan, Raven soars on acquisition.

Hey Global Investor, here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Monday’s Close) 4,224.79 +58.34 (1.40%)

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🚕🛵 Uber: Can Delivery Business Deliver Profits?

Ride-hailing app Uber Technologies Inc. (UBER) has fully acquired grocery delivery start-up Cornershop in an all-stock transaction. Uber is going beyond rides and doubling down on food and grocery deliveries with its second acquisition in 12 months. (Tweet This)

From Trips To Treats

Uber was launched in March 2009, after its founders were unable to get a cab on a cold winter night. The idea of getting a ride to wherever and whenever at the tap of a button caught on to make the company a unicorn almost overnight.

Within four years of launching, Uber’s services were available in 100 cities around the world, growing to 500 cities by 2016. It is also making its foray into autonomous vehicles. However, there remained a cause of concern.

Business was wholly dependent on generating revenue from rides and was not profitable. Moreover, many copy-cat businesses sprung up with ride-sharing startups mushrooming in a short span of time. Amidst rising competition, in a bid to diversify revenue streams, Uber launched UberEats in April 2015.

Through UberEats, the company entered the food-delivery business in the US and also tried to grow it in markets such as India. But incumbents in India such as Zomato and Swiggy were far entrenched and UberEats in India was sold to Zomato for $350M last year.

Ride No Longer The Pride?

US, on the other hand, is a different market altogether. The pie is large enough to sustain serious competition such as DoorDash, Grubhub, UberEats, etc. In fact, UberEats tried unsuccessfully to acquire Grubhub, but it was ultimately bought by Europe’s Just Eat for $7.3B. Not one to give up, the company acquired food delivery business Postmates in an all-stock deal worth $2.65B last July.

In 2019, Uber also bought a controlling stake (53%) in Chile-based grocery delivery startup Cornershop, which operates in multiple countries in North and South America including Peru, Brazil, US, Mexico, and Canada. Yesterday, Uber acquired the remaining 47% in Cornershop in an all-stock deal worth ~$1.4B.

It’s becoming obvious that Uber considers delivery as an important revenue (and profitability) generator. The company also bought alcohol delivery startup Drizly in February for $1.1B. However, these aggressive attempts to scale belie the fact that UberEats is losing an average of $3.36 on every order.

It’s estimated that loss per order delivered will shrink to $0.46 by 2024, but that still means the road to profitability is unclear. So why is Uber looking to pump in more money into a business where profitability doesn’t even register on the horizon? Simple. Its core business is not doing well.

The revenue from providing rides declined 65% Y-o-Y in Q1 2021, while the revenue from the delivery business more than tripled in the same timeframe. As of last month, Uber has ~25% market share in the food delivery business in the US. The investors are not fully convinced and are still saying: “Show me the money.”

Market Reaction
UBER ended the day at $48.12, down 3.18%.

Company Snapshot 📈

UBER $48.12 -1.58 (3.18%)

Analyst Ratings (42 Analysts) BUY 88%  HOLD 10%  SELL 02%

Newsworthy 📰

Split: Victoria’s Secret reportedly borrows $500M to finance split from Bath & Body Works (LB +4.79%)

Job Prospects: Delta Airlines plans to hire 1K pilots by next summer as travel demand surges (DAL +1.80%)

Deal Done: CNH Industrial to acquire Raven Industries, enhancing precision agriculture capabilities and scale (RAVN +49.27%)

Later Today 🕒

  • Plug Power Inc. Earnings (PLUG)
  • Korn Ferry Earnings (KFY)
  • Mastercard Inc. Annual General Meeting (MA)
  • Airbnb Annual General Meeting (ABNB)
  • 7:30 PM IST: Existing Home Sales (SAAR)
  • 11:30 PM IST: Jerome Powell Testifies on Covid-19

Fun Fact of The Day 🌞

More than 80M mouse ears have been sold at Walt Disney World to date

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