Uber shows why food-delivery business is no cheap date
The Uber logo is displayed during a press conference in Taipei, Taiwan, Apr. 13, 2017. EPA-EFE FILE/RITCHIE B. TONGO
An illustration showing a man pressing the Uber app on an iPhone in Cologne, Germany, Apr. 11, 2019. EPA-EFE FILE/SASCHA STEINBACH
Madrid, Apr. 17 (EFE).- Uber's drive to go public is lighting a fire under an already-sizzling market for online food delivery, where everyone wants to eat each other's lunch, according to a report from the Dow Jones Newswires made available to EFE Wednesday.
In preliminary initial public offering papers filed last week, the ride-hailing giant makes it clear that its food-delivery arm, Uber Eats, will be an area of heavy investment for some time. This is for good reason - Raymond James estimates the total takeout market in the US will reach $269 billion this year, with online penetration rates rising from under 7 percent last year to 30 percent by 2028.
This massive opportunity has brought multiple dominant players to the table, many of which are content to burn cash to grow quickly. Earlier this year, venture-backed DoorDash raised $400 million it is sure to deploy toward winning market share. Past investments here have paid off: Updated Edison Trends estimates show DoorDash continues to gain on previous leader Grubhub, after edging ahead in market share in terms of total dollars spent in February.
The same data found Uber ranking a close third in the US just three years into its launch. It is easy to see why. The company already has the massive scale of its driver base, and it spent 28 percent of its more than $11 billion in revenue last year on sales and marketing alone to support its total business. Uber is also reportedly looking to raise around $10 billion through its public listing, which would give it the ability to burn cash for nearly a decade if it chose to do so.
That may not bode well for Grubhub, which has seen its profitability decline as competition has intensified.
The sock plummeted late last year after the company said it would ramp investments in fourth-quarter, weighing on net income. While Grubhub has said it expects those investments to come down over the course of this year, analysts still expect full-year earnings to fall 38 percent in 2019. Grubhub's stock has slipped another 6 percent since Uber made its filing public last week.
The US food-delivery market is unlikely to be winner-take-all. Analyst surveys indicate most consumers are using more than one delivery app, and much of the market remains untapped. Even Uber doesn't have a lock on market growth -- the company revealed in its filing that adjusted revenue for its delivery business declined over the last two quarters, in part due to greater competition.
With all players hungry for new eaters, their tabs keep running up.
By Laura Forman