Ridesharing companies have been cutting costs during this pandemic, with the number of passengers using these services having declined substantially. However, to many investors’ surprise, one of the largest ridesharing giants on the market, Uber (NYSE:UBER), announced recently that it would reconsider buying out the food-delivery giant GrubHub (NYSE:GRUB) to further expand its food-delivery capabilities.
It is a surprising announcement given the fact that Uber stated relatively recently that it would be trying to cut down on costs. Uber’s CEO described earlier in May that it would be reducing total costs by around $1 billion in an effort to make the company profitable sometime in 2021. Uber would also be laying of around 14% of its employees to make this happen. Despite this, it appears that the company has no qualms about buying out GrubHub in this market climate.
Bloomberg went on to report that Uber had officially made an offer to purchase its food-delivery rival. Although the exact sum in question wasn’t mentioned, it was clear that the deal would be an all-stock transaction. Considering that GrubHub’s current market cap is around $5.5 billion, Uber would likely pay over $6 billion to buy out the company, including premiums, if not more than that.
While these talks are still in very initial stages at the moment and could very well end up in things falling apart, some shareholders are wondering whether this is the right course of action considering the decline in Uber’s business due to this pandemic. Uber also owns a food delivery service, Uber Eats, that competes directly with GrubHub. The idea is that bringing the two businesses together would help spur growth for Uber, especially since food delivery services are doing reasonably well during this time as people stay quarantined in their homes.
Whether or not this is the right move is yet to be seen, but food delivery services have been a fast-growing area for a while now. Uber Eats reported over 50% revenue growth in comparison to Q1 2019, whereas Grubhub reported first-quarter revenue growth of 12% from last year.
Shares of GrubHub shot up 29% over the course of the day in response to the potential acquisition news, while Uber’s stock increased by a milder 2.4%. Both stocks have also been recovering over the past couple of months as well. Although it might seem like a risky move proposing a multi-billion-dollar acquisition while Uber’s trying to cut costs if there’s enough potential revenue growth at stake, it could be worth the investment.
Uber Company Profile
Uber Technologies is a technology provider that matches riders with drivers, hungry people with restaurants and food delivery service providers, and shippers with carriers. The firm’s on-demand technology platform could eventually be used for additional products and services, such as autonomous vehicles, delivery via drones, and Uber Elevate, which, as the firm refers to it, provides “aerial ridesharing.” Uber Technologies is headquartered in San Francisco and operates in over 63 countries with over 91 million users that order rides or foods at least once a month. Approximately 83% of its gross revenue comes from ridesharing and 16% from food delivery. – Warrior Trading News