June 16, 2020 / 9:42 PM / a month ago

Breakingviews - Uber’s M&A plans thumped by inflated values

A delivery man cycles in Manhattan, New York, U.S., June 8, 2018. REUTERS/Amr Alfiky

NEW YORK (Reuters Breakingviews) - Food delivery service valuations are decadent. A rush of homebound consumers seeking takeout from the likes of DoorDash and others is boosting the sector to new heights. That puts a damper on deals for Uber Technologies, whose larger business is ride-sharing. But valuations can reverse just as quickly when lockdowns ease for good, putting Uber in a better spot to gobble a rival without price-tag heartburn.

In May, sales for food delivery services doubled year-over-year collectively, according to data from Second Measure. That offers one reason why SoftBank-backed DoorDash, the U.S. market leader accounting for nearly half of all sales, is raising cash at a valuation of some $15 billion, according to the Wall Street Journal last week. DoorDash is now worth 15% more than what it was pegged at last year, and publicly traded Grubhub reflects an even starker trajectory. Its price-to-trailing sales multiple has gone from 2.6 times in October – when Chief Executive Matt Maloney warned of irrational competition – to 4.2 times now.

The same multiple at Uber’s ride-sharing competitor Lyft has fallen a third to around 3 times, a reflection of fewer people going out and about in cars that are not their own. Uber, meanwhile, hovers at 3.9 times - somewhere between the two, and just slightly less than where it was last fall.

Just Eat Takeaway.com’s pending acquisition of Grubhub complicated matters for Uber, in part because it has helped buoy valuations. The ride-sharing service had been in discussions with Grubhub for several months about a deal, which broke down because the two parties couldn’t agree on how to handle regulatory hurdles, according to Reuters. Since Grubhub partnered with European peer Just Eat, Uber’s shares are down about 9%.

Antitrust concerns aside, DoorDash could be next on Uber’s list, but Uber has reason to wait. While Uber’s multiple – a reflection of being both ride-sharer and food deliverer – is something of a curse now, it could be a blessing when the pandemic tides turn. The highly competitive nature of the market won’t change, so Uber will still need to gobble up a rival. But just as food delivery services are coming down to earth, Uber could zoom in with a more valuable stock – and a new deal.

Breakingviews

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