Uber’s New Strategy: Buy Unprofitable Companies, ???, Profit

Uber's new strategy is just like its old one. Make its money-losing business bigger by buying other money-losing businesses like Postmates.
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Image: Justin Sullivan/Getty Images

After Uber's merger talks with food-delivery company Grubhub fell apart, Uber has now set its sights on Postmates, according to the New York Times. Uber Eats, the ride-hailing company's food-delivery unit, is just as unprofitable as the rest of Uber's business operations, but that hasn’t stopped the company from reportedly offering $2.6 billion to takeover Postmates.

Uber has been searching for ways to stay afloat during the pandemic as its core ride-hailing business has collapsed and its business model of misclassifying driver-employees as independent contractors to save on labor costs is coming under increased scrutiny in California and nationwide. In its Q1 earnings call, Uber reported that rides were down over 80 percent and it had recorded an eye-watering loss of $2.9 billion (it has never recorded a profit), but there was a bright spot: food-delivery was up by 54 percent since last year.

Still, it’s not clear that Uber Eats—or an acquisition of Postmates—will be enough to save the company. In March, Rideshare Drivers United, an app-based driver advocacy group in California, released a wage claim tool to let drivers claim stolen wages and unpaid business expenses; a mere 4,000 Uber and Lyft drivers have filed claims in excess of $1 billion. Last year, there were well over half a million Uber and Lyft drivers last year and reports have pegged Uber’s annual driver retention rate at around 4 percent. Mind you, this is only in California and only includes wage claims—there is also a growing call for Uber to pay state unemployment insurance taxes in not only California but the rest of the country, a prospect that could cost billions more if realized.

Facing such abysmal numbers, a merger with Grubhub—which holds about 34 percent of the US market share in food delivery, compared to UberEats’ 24 percent—would've been a much welcome shot in the arm. Too bad, then, that Uber’s monopoly dreams were dashed when the Dutch food-delivery service JustEatsTakeaway bought Grubhub and announced it would “create the world’s largest food delivery business outside China.”

Uber is now interested in Postmates, which only enjoys 8 percent of the US market share and will now have to decide between going public or risking an acquisition that could raise antitrust concerns. Uber’s play here probably isn’t big enough to stop the chickens from coming home to roost—especially since Postmates’ business is concentrated in California where Attorney General Xavier Becerra may force gig platforms to properly classify their drivers as employees

Much of this feels like rearranging deck chairs on the Titanic. Uber has tried many things to make money: rideshare, bikeshare, self-driving cars, and food delivery. None of it has worked. Its new idea seems to be buying competitors who also lose money, and hoping that changes something. It’s not clear how this will work, but it’s enough to keep investors happy for now.