Postmates’ win in riding with Uber

Postmates will miss out on a dramatic IPO launch party on the floor of the New York Stock Exchange or at Nasdaq HQ. Postmates investors may, instead, get something more coveted than corporate pageantry: actual synergies.

On Monday, the online food delivery service announced it will be gobbled up by Uber, fusing it with its own Uber Eats. The mooted deal price was US$2.65b ($4b). Its VC backers will receive Uber shares, no cash. Effectively, Postmates will become a unit of a publicly traded transport company.

Uber, fresh after its failed acquisition of larger delivery app Grubhub, promised US$200m of annualised deal benefits from adding lossmaking Postmates (so expect serious lay-offs). Nominally, the deal price is a slight premium to the group’s 2019 valuation. However, its shareholders now depend on Uber’s success in ride-hailing, not food delivery, owning about 5 per cent of Uber once the deal closes.

The good news is that though Uber shares are down a fifth from their highs for the year, they have more than doubled off its lows in March.

On more than US$600m of gross bookings, Postmates created US$107m of revenue in the first three months of 2020. Uber Eats by contrast had more than US$500m of top line in that same period and recorded an operating loss of US$300m. Losses of more than $1b in the previous 12 months show UberEats’ bloated cost structure and the opportunity for cost-cutting after buying Postmates.

Sticklers might well wonder why Uber would buy any large food delivery service. At least the Uber rides business, at almost seven times Uber Eats revenues, earns gross profits even if overall growth has slowed. Still, the market applauded. Uber shares rallied 6 per cent on Monday, so Postmates shareholders should feel good about riding with Uber, instead of listing. But the ongoing upward trend of their new Uber shares will need more than just US$200m of savings in food delivery.