
Uber, Postmates Agree on $2.65B All-Stock Deal - uptown
https://www.bloomberg.com/news/articles/2020-07-06/uber-postmates-said-to-agree-on-2-65-billion-all-stock-deal
======
tyre
Food delivery is a terrible business. M&A won’t make it better.

I worked at LivingSocial in 2012/2013\. We used to joke that “we lose money on
every transaction but make it up in scale.”

Takeout and Delivery was one of the last bets the company made. Basically food
delivery. The customer service load is huge, the services aren’t really
differentiated, and you have to both pay the driver enough for it to be worth
it and keep prices low for the consumer to think it’s worth it.

Attracting customers on either side of the market means spending money to
undercut your competition. As soon as you stop giving free delivery promotions
or introductory no-fee periods for restaurants, they can instantly churn with
little to no pain. Not to mention reaching small restaurants is incredibly
time consuming. They’re not all just hanging out online. They’re running a
business. They take a lot of expensive (human) outreach.

Margins are terrible, if they’re ever positive. It’s just a bad business.

And yet people keep trying. None of these companies have made a net dollar.
But it’s a simple enough pitch and a common enough use-case that investors
think, “yeah, that makes sense!”

But it doesn’t. It just doesn’t.

~~~
bhl
I think a questions that’s going to pop up is, why does delivery work for a
company like Dominos’s (vertical integration) but not Postmates (horizontal)?

~~~
ThrustVectoring
I've worked as pizza delivery. The tipping and per-delivery payments to
drivers is why it works.

Roughly speaking, a delivery driver in my area nearly a decade ago earned
roughly $20/hr after gas and car expenses, half in hourly wages @ state
minimum and the other half in tips + $1/delivery payment. They also took about
3 deliveries an hour when fully utilized, which wasn't for 100% of their
shift. The wait time got used productively, combination of answering phones,
making pizzas, or at worst folding boxes.

This combination means that you're employing people at a significnatly-above-
minimum-wage level, but their excess time waiting for deliveries gets paid at
minimum wage and used to do customer service. And in the worst case when
things are so absolutely slammed that there is no downtime, well, that's when
you have to let phones ring (or answer briefly with "thank you for calling,
our wait time is currently two hours, would you like to place an order?").
Plus these drivers know the store and the area well and from that alone should
be significantly more competent at resolving issues - often enough someone
calling in about their order will end up talking to the person who just tried
and failed to make the delivery.

With Postmates and the like, though, the time spent waiting for a delivery has
no useful work to fill the time. It's also not paid, but the gig has to
justify itself economically, which means that drivers have to make up for it
through increased per-delivery payments.

Basically, the difference is that store-employed drivers can do useful work
while waiting to engage in deliveries, while app drivers can't. This is a
_very_ significant efficiency gain.

~~~
mathieuh
What about in countries where tipping is not normal? I live in the UK and lots
of small family-run fish and chip shops and takeaways offer delivery, along
with the bigger chains like Dominos.

~~~
washicalendar
Like the person you responded to said, employees working for those stores can
do useful work when they aren’t delivering. Here the Domino’s are delivered by
bicyclists and those people are doing work for the store when they’re waiting
for deliveries. That work justifies them being paid a wage. For Postmates et
al., those drivers aren’t doing anything useful during their downtime. They
have nothing to sweep or dishes to clean etc. Postmates et al need to pay them
enough to make it worthwhile for them, which gets passed onto the customers.

Personally, I’ve ordered a ton of food delivery lately from places I’ve wanted
to try but never found time to go. But, I don’t order from them more than
once, so those businesses aren’t making a customer out of me.

~~~
mathieuh
Yes but they said 50% of their income comes from tips and a $1 delivery fee.

I assume tips are generally more than $1 (I may be wrong).

Maybe it’s just not productive to compare different countries’ eating habits
in the end, but it seems to me GP is saying that tips make up a meaningful
proportion of delivery drivers’ income.

~~~
washicalendar
My bad, I misunderstood, but I’m not sure how tips are relevant.

It seems like the GP(?, the first poster in this chain) was saying that
delivery works for places like Domino’s which hires and pays their own
couriers a standard wage. That wage is already accounted for in Domino’s
pricing, and since that employee has to show up to work even when there aren’t
deliveries they can be put to work. Thus, there are no additional costs to
Domino’s as everything is presumably priced taking this into account.

When you outsource your delivery, the company being hired takes a cut. That
company (Postmates etc) need to use this cut to pay their couriers. Postmates
can only ask for so much before the store just says no, it’s not worth it.
Those couriers need to be paid enough that it’s worth it for them to keep
delivering. So, Postmates scales up to make up for it in bulk by taking losses
by offering deals. Those deals don’t last forever, and customers like me only
order because of the deals will just go away.

------
mardifoufs
What's Postmates moat? Having never used it, I don't necessarily see the 2.6b$
value in a smaller delivery app that is only really used in some areas of the
US. Though I'm sure there is something I'm missing and 2.6b$ is probably less
expensive than the cost of pricing Postmates out of the market especially
considering it's an all stocks deal. It's just that delivery seems to be
easily scalable and easy to just dump money in to gain users (free delivery /
delivery fees are much stronger factors than brand loyalty in my experience)
so why acquire relatively minor players?

What's also interesting is that Postmates seems to have raised around 700m$,
so chances are it's investors are probably the first to make an actual
realized profit from food delivery ;).

~~~
acwan93
I use Grubhub most of the time, and I’ve found the thing that keeps me on the
platform is 1) The $10 monthly credit on American Express Gold cards and 2)
The 2% cash back from the Rakuten portal, which stacks with the 4x points from
the Amex card.

Of course, a lot of restaurants end up increasing their prices on Grubhub to
make up for their fees, and rightly so (I phone in using the number listed on
Apple Maps). I still don’t understand how anyone expects these food delivery
apps to be profitable. I’m also 95-99% certain once we feel safe dining at a
restaurant again we wouldn’t be using these apps anymore.

~~~
vecinu
> 1) The $10 monthly credit on American Express Gold cards

But the annual fee is $250, how is it worth it? At best if you use the $100
airline credit, which is now hard to "hack", and max out $10/mo on Grubhub,
you're still paying $30 for the privilege...

~~~
Arubis
Amex has customer service at least an order of magnitude better than any
Visa/MC licensee I’ve dealt with; that’s really what you’re paying for. If
something goes wrong with a purchase, they’ll tend to make it right without
asking many questions/filling any forms. Lost cards can be next-day’s without
charge. They have actual physical offices in non-US nations that can advance
you local currency and provide you a new card (among other things) should your
wallet be stolen while traveling.

Having utilized card services and customer support heavily for almost two
decades with a number of card co’s made me very much an Amex partisan.

~~~
vecinu
That's interesting, I have many credit cars from Visa/MC/Discover and never
had an issue with fraud purchases or lost cards.

~~~
PopeDotNinja
The only payment service I’ve had fraud trouble with is PayPal. Their customer
service is the worst. I recently bought something through PayPal, and it was
amazing to see how hard a fraudulent seller could take their system.

------
0zymandias
I am bullish on this as a recent shareholder. We are now in the consolidation
phase of delivery service where fewer companies mean less competition, more
efficiency and better economics.

This is where Dara’s strength is. He has a history of great dealmaking and
acquisitions. I expect Uber to thrive as the industry consolidates.

~~~
Ozzie_osman
A more cynical take on this might be that it's hard to actually turn a
sustainable profit in this market unless you have monopolistic pricing power,
and hence, consolidation. Less of "the strong get stronger" and more of "the
unprofitable become few enough to become profitable"

~~~
dragonwriter
> A more cynical take on this might be that it's hard to actually turn a
> sustainable profit in this market unless you have monopolistic pricing
> power,

I'm not convinced even a sole provider would have pricing power in anything
but a vastly smaller market than currently exists: food delivery doesn't
compete with only other food delivery, but also with “drive there yourself
takeout” and “cook (or at least heat up) food at home”, which limits the scope
of pricing power.

------
jameslk
I am awaiting a Steve Jobs-like re-entry of Travis Kalanick back into Uber
when Uber purchases CloudKitchens to complete its kitchen-to-door vertical
integration. It's all very hypothetical, but I give it a 1% chance of
happening.

------
schoolornot
The future of Uber is clearly diversification. Drivers doing everything. I
absolutely love that I can order food from distant restaurants because they
have driver routes programmed to cover large distances and a business model
that supports longer wait times for the customer in exchange for cheaper
prices, wider restaurant selection, and of course more customers served. The
local establishments can't compete with the 1 driver to 1/2/3 customer(s)
model.

~~~
TuringNYC
I'd say the future of Uber is perfecting their crown jewels first.

I'm a huge fan of the business model, but the app crashes, the customer
service is non-existent, payments get rejected inexplicably and when you reach
customer service they respond "I'm sorry you are having difficultly logging
in."

I couldnt make it worse if I tried. Every rule of SWE-UX is violated. Got a
problem? No code, no incident ID, you need to call a number with no context
and re-contextualize. No follow-thru, nothing.

------
cletus
What I find interesting about the food delivery business is that there's
clearly a market for this but nobody's happy.

\- Restaurants (rightly) complain that the drivers provide a poor service. For
example, pizza delivered cold because the drivers have no heat bags. I've even
heard of a pizza box mounted vertically on a delivery bicycle.

\- Customers are unhappy because food can be delivered cold through no fault
of the restaurant. To save money, multiple deliveries can be scheduled at
once. You can see this as your assigned driver drives passed the restaurant
when your food is ready, clearly they're on another delivery. They come back
20 minutes later and turn what should be a 10-15 minute delivery (from the
time the order is ready) to a 45 minute disaster;

\- And drivers don't seem happy, complaining about low pay.

Yet... people want food delivered. Is this really just a case of people not
willing to pay what the service truly costs? If so, no consolidation will
help. I imagine fairly small delivery areas is really the only thing that can
be economical.

~~~
Mengkudulangsat
I foresee a future where the entirety of listings on food delivery apps will
be ghost restaurants - those whose menu and processes are optimized for
delivery.

Many high street brick-and-mortar restaurants will shut, but those that remain
will likely make being "not available on any food delivery app" a unique
selling proposition.

~~~
t-writescode
You're suggesting that the act of eating out, or walking for takeout is going
to stop for a sufficient percentage of the population that regular restaurants
are going to disappear?

That people are going to pay a premium to have their food always delivered and
that people actually want to be in their homes / offices all the time, rather
than get out of their current place to go and do something?

~~~
Mengkudulangsat
Well as an extreme example: I can picture myself subsisting on Soylent every
day, ordering from a ghost restaurant every other day, then visiting a
restaurant for social fuel once a week.

I don't have a kitchen.

With the time saved I reckon people will find something else to do outside
instead of eating.

------
minimaxir
Postmates raised $903M since 2012:
[https://www.crunchbase.com/organization/postmates](https://www.crunchbase.com/organization/postmates)

Not a 10x exit.

~~~
mardifoufs
Still surprising that they have managed a ~3x exit. They were raising money at
a 1.3b$ valuation as recently as 2018 and to me it seems like Postmates is
further behind it's competition in terms of growth and market share than it
was 2 years ago.

~~~
texasbigdata
Not sure you can do the division like that without knowing what percent of the
company the contributed capital represented.

~~~
mardifoufs
Oh, yeah that's an embarassing lapsus.To my defense,it seems like most of the
equity is owned by investors and not founders, so the average return of the
900m$ is probably still around 3x~. It also seems like they have never been
valued higher than the price Uber paid for them so odds are few investors got
really burnt regardless of when they invested.

~~~
mrnobody_67
Some investors got wiped out when the company had to do a pay to play, I
believe.

------
jboydyhacker
You can't take two one legged men and tape em together and win a race.

UberEats and Postmates have the worst execution in the space compared to
Caviar (owned by DoorDash), DoorDash and Grubhub.

Dara is a banker, he doesn't know anything about operations. This will end
bad.

~~~
didibus
What do you mean by execution? As a user, I've used them all, and like Uber
Eats overall UX the best. But I suspect you were talking more about business
operations?

~~~
tguedes
If I was an investor, I would be worried that the CEO with no operations or
technology experience is also the COO and CTO, is the one leading the
operations and technology integration.

------
jhallenworld
So city dwellers in the ancient Roman world did not have kitchens- possibly
they ate out more than we do.

So there must have been demand for food delivery... I wonder if they
accomplished it with slaves?

Well there is some history:

[https://www.thevintagenews.com/2019/01/08/food-
delivery/](https://www.thevintagenews.com/2019/01/08/food-delivery/)

The Indian "dabbawala" maybe is where it has to go: some kind of standardized
service where one driver can deliver to many people in a single traveling-
salesman minimized trip. The packaging is designed to keep the food warm for a
long time to allow this. But this probably only works for pre-arranged food
delivery, not call for food now.

[https://en.wikipedia.org/wiki/Dabbawala](https://en.wikipedia.org/wiki/Dabbawala)

~~~
missedthecue
I mean there wasn't a way to remote order in ancient Rome. You'd have to go
yourself or send someone.

~~~
emiliobumachar
Have a pyre at your home's roof, and an arrangement with a restaurant to send
a meal when they see it on fire. I'm joking, of course.

~~~
the-dude
They had multistory appartment buildings. What if you didn't live on the top
floor?

------
gigit_phd
The only difference between Postmates and Uber Eats is that Postmates
customers overwhelmingly tip the delivery driver. The Postmates app and
systems is horrifically engineered. Uber Eats is an exceptionally better
system.

~~~
tuckerconnelly
Postmates has the cleanest API IMO. If you want to see an engineering horror
check out DoorDash. Half GraphQL, half REST, random 500s, no SSR.

~~~
JMTQp8lwXL
Lack of SSR != An engineering horror. Crawlers can handle these pages
effortlessly these days. So long as the client-side performance is good, SSR
isn't very important.

~~~
tuckerconnelly
In aggregate it's all a horror, given how easy it is to add SSR with Next.js.
I know, I work on crawlers and scrapers professionally, and it's wayy easier,
if you want a robot to scrape you, to have a site with SSR disabled. It's just
generally faster and and a better experience for the user, and cheap to add.

As an aside, Stripe IIRC seems to use half-SSR, half client-side fetching
really interestingly to fetch data below-the-fold after load, for even faster
load times. That there is excellent engineering.

------
rchandna
I don't understand why Uber has been so obsessed with buying another company
in the US food delivery market.

~~~
uber473453
The CEO is a banker. Naturally he sees M&A, not innovation, as the company's
future.

~~~
Jommi
It's been an M&A company for years now. Just look at its portfolio of
ownerships in competing local leaders like Didi, Yandex and Grab. It's a
perfect food delivery ride hailing super app investment fund!

~~~
rswail
Didi and Grab weren't M&A to Uber, Uber in their cities/countries were
acquired by Didi/Grab via stock.

~~~
Jommi
How is that different? You could just rephrase what you said to say:

Uber purchased non-trivial shareholder positions in their global competitors.

For example the case in Russia was a quite literally a merger. Uber and Yandex
made a joint venture, which operates in Russia and some former eastern bloc
countries.

------
DanCarvajal
Surely Uber will be profitable with this addition.

~~~
chrisjarvis
-increasingly nervous man for the umpteenth time :D

------
donsupreme
They offered $5B for Grubhub who has 30% market share, and now $2.65B for
Postmates who has just 8% market share.

~~~
manigandham
Grubhub is mostly big in NYC. Doordash has the most marketshare at around 45%
and good coverage in the US. Postmates and Uber Eats were battling for 3rd
place. Postmates seems to have more restaurants on board along with branching
out into drinks and convenience stores, and I believe general shopping in
certain regions.

~~~
selectodude
GrubHub is huge in Chicago, in fact it was started at University of Chicago
and is still based in Chicago.

~~~
manigandham
Overall Doordash has beat them, especially now with the pandemic. Here's a
breakdown: [https://secondmeasure.com/datapoints/food-delivery-
services-...](https://secondmeasure.com/datapoints/food-delivery-services-
grubhub-uber-eats-doordash-postmates/)

~~~
skinnymuch
Just bases on recent numbers. How is it Uber and Postmates were battling for
3rd? And 1st and 2nd are close? Seems like Grubhub and Uber Eats are close
now. With Doordash and Postmates both far apart.

------
viburnum
Clearly private industry has run out of profitable investments. Better to
shift spending to public investments (science, education, err, the current
public health emergency) than to waste more money on delivery boondoggles.

~~~
AndrewUnmuted
Unfortunately the recent trend of tearing down public statues probably doesn’t
instill confidence that these kinds of corporate investments will be properly
protected.

~~~
jemski
If it takes 155 years or so for people to decide they don't like that
investment, I'd probably call that a sound investment. You could even put
money into things that tend to be quite nice for people. Schools come to mind.
Libraries. I'm spitballing.

Unless the plan is to build monuments to current day prison wardens. Depends
how bad-faith the argument is, I suppose.

~~~
Kye
Not that it takes away from your point, but they're mostly not 155 years old.
Most of the statues were put up during the Jim Crow era and during the Civil
Rights movement of the '60s. You can see a graph on the Wikipedia page.

[https://en.wikipedia.org/wiki/List_of_Confederate_monuments_...](https://en.wikipedia.org/wiki/List_of_Confederate_monuments_and_memorials)

------
aritraghosh007
Looks like a 10% premium on their last valuation of $2.4B. [1]

[1] [https://news.crunchbase.com/news/postmates-
raises-225m-more-...](https://news.crunchbase.com/news/postmates-
raises-225m-more-at-2-4b-valuation-despite-private-ipo-filing/)

------
SEJeff
The magic of postmates is good integration with google maps and no service
charge (for me).

------
mrnobody_67
For insider background info: Postmates had to do a "pay for play" at one
point, wiping out investors who wouldn't put more money into the company
because it was so desperate for cash.

The company also was shopped around for years by Frank Quattrone, who runs the
"most" successful M&A advisory business - QATALYST. They didn't get anywhere
with a deal, this was led by a different bank after they were fired.

------
baby
Got a friend on a H1B visa who got fired from Uber due to the coronavirus
crisis, funny that they’re spending 2.65B a few weeks later.

~~~
andromeduck
Spoilers: they're not, it's an all stock deal.

------
rreichman
Weird that people keep saying that food delivery can't be profitable when
Grubhub has already been profitable and only became unprofitable due to the
Doordash/Uber Eats price user acquisition wars. It's the same thing that
happened in ride-hailing, which already proved to be profitable.

------
uptown
Here's the official press release:
[https://www.businesswire.com/news/home/20200706005133/en/Ube...](https://www.businesswire.com/news/home/20200706005133/en/Uber-
Acquire-Postmates)

------
mvkel
Isn’t this effectively just a “public roll up,” combining market caps to
ultimately lift the valuation and multiple for shareholders? There’s a reason
it was all-stock. Not a penny to be found.

------
didibus
The part that's frustrating is that, prior to all these companies, most of the
same restaurants I order from had free delivery, but you had to call in, no
nice mobile app to go along with ordering, payments, showing the driver on the
map, etc.

Now, you do get all that nice UX convenience, but you pay extra for it.

I feel like in the end, the issue here is that those companies are just a bit
of a useless middleman, not providing enough added value.

------
angusb
what does all-stock mean when it's an IPO'd company?

I've always thought that a liquid asset like Uber stock is basically as good
as cash, so why do they even bother mentioning that it?

~~~
huangbong
There’s probably time restrictions on when you can sell the stock. Also if you
cashed out $2.65 billion of Uber stock the price would go way down.

------
adjkant
This feels like another grasp at straws, and one that may backfire quicker
than expected based on my experience on the ground.

In NYC I've recently noticed that the pandemic has created a much larger focus
on delivery and takeout margins, and these platforms are actually losing good
restaurants. I for one am happy based on who I see picking them up though:
ChowNow.

Right now, my 3 most common orders (and more I'm seeing daily) are all on
ChowNow. Their model is a flat rate[1], not per delivery, and offer basically
a self hosted (but in reality hosted), well designed, simple platform.
Payment/address details are shared across restaurants so it's a similar feel
to a Grubhub/Seamless/Postmates. They have their own search I just may start
using[2], a lot of places around me are on it.

I got a postcard in one of my orders telling me prices were cheaper (no
middleman tax) on their website (using ChowNow) and a 10% off code too.
Another texted me. Worked great, was smooth, and my orders arrived
consistently sooner too. Since then I actually think to check direct websites
of places I find on Grubhub and found another few using it. Cheaper and
quicker for me in all cases so far.

I think they may have cracked the code, because delivery is never going to be
the profitable aspect no matter how much you could theoretically leverage
Uber's cars or some nebulous eventuality of self-driving. But if your ordering
system is all in one, it simplifies things dramatically for restaurants.
Pickup, delivery, and in person all on the same system and no middleman fees
per transaction. Someone mentioned Domino's, and it seems very close to
Domino's as a service to some extent. As far as I can tell, the restaurants
handle delivery themselves which seems more sustainable too. I am 0%
affiliated with them but they seem to be the favorites of my favorite
restaurants + a good and sustainable model.

I'm wondering if other cities are seeing the same adoption. I think this could
take the delivery world by storm and make this acquisition look even worse,
quick.

PS: I always felt like Postmates and Uber Eats were so interchangeable as is -
high overlap of restaurants, nearly the same UI, and same very high fees even
compared to other services. The only advantage either had was maybe offering a
few more restaurants by doing menu scrape style things earlier and with some
big chains before they got in on the delivery game, and that edge is gone now
especially. I would expect the pandemic and this shift to motivate Postmates
to exit, but I just don't see why Uber would want to realistically buy it.
Seems like a play for market share in a market that doesn't work, and a low
market share at that.

[1] [https://get.chownow.com/pricing](https://get.chownow.com/pricing)

[2] [https://eat.chownow.com/](https://eat.chownow.com/)

~~~
ipsi
Their website is just their logo. I'm assuming that's because they aren't
offering service in the country I live in, but I'd expect them to at least say
that? As it stands, I don't _know_ if the page is broken, if my ad-blocker has
screwed it up, or if they're just not offering me service...

~~~
adjkant
My guess would be US only, though quite odd functionality for sure.

