The pandemic made food delivery apps the new norm and companies like Uber (NYSE:UBER) were quick to adapt to what would soon become an essential service. The ride-sharing app saw an 80% decline in usage globally after mandatory lockdowns were imposed, creating a threat to UBER stock.
With a large network of drivers in its system, Uber made the decision to focus its efforts on its delivery service, Uber Eats. The entity served as the businesses’ main revenue driver over the last few months. After an initial surge in demand on Uber Eats, the company seeks to grow its market in this industry.
As the ride-sharing app continues to embrace its newfound success in the food delivery business, an investment in Uber stock is a worthy pursuit.
Uber Orders Postmates
In early July, Uber acquired its long-time rival, Postmates in a $2.65 billion all-stock deal. The acquisition will allow the ride-hailing service to expand its footprint in the food delivery space. Uber now holds second place in this sector, behind DoorDash.
The deal serves two purposes for Uber. First, it allows the company to capitalize on potential revenue from the food delivery market which has seen a boom since the pandemic-induced restaurant closures.
Secondly, Uber’s ride-hailing services were rocked by the pandemic due to the potential risk of the spread of the virus and its large network of drivers found themselves with no income overnight. The deal will Postmates will allow Uber to leverage its large pool of drivers to deliver food.
Investors saw the acquisition as a step in the right direction for the company and Uber’s stock price increased by 6% the day the deal was announced. Uber famously tried to acquire Grubhub (NYSE:GRUB) early in 2020 but the deal did not go through. Nevertheless, the Postmates buyout is likely to be a boon for profits in the long-term.
Uber’s efforts to diversify didn’t stop with its acquisition of Postmates, the company plans to take on the world of grocery deliveries next.
Uber Shops For Groceries
While the pandemic was bad news for businesses across industries, it also brought an end to ride-hailing services as we know. Uber took this downturn as an opportunity to increase spending on high-growth industries like delivery services that soon became a lifeboat for many people.
After the Postmates deal closed, Uber’s next venture is in the grocery delivery space. With supermarkets and grocery stores operating on limited hours, many people relied on grocery delivery, such as those provided by Instacart, for their essentials.
However, breaking into the intensely competitive world of grocery deliveries will by no means be an easy feat for Uber. Major retailers from Walmart (NYSE:WMT) to Target (NYSE:TGT) and Amazon (NASDAQ:AMZN) offer grocery deliveries but Uber’s distinct advantage over these companies is the large network of drivers in its system.
Revenue for grocery deliveries in the U.S hit a new high since the pandemic with current online grocery sales at $7.2 billion. While the shift from traditional grocery shopping to the virtual world is a derivative of the corona-economy, experts believe that this trend is likely to continue long after the pandemic.
The prospects of growth in this industry is great news for Uber as the company seeks to break away from its “ride-hailing app” title. Although competition is stiff, Uber has some leverage in this market and holds a majority stake in the grocery-delivery app, Cornershop.
Uber’s increased diversification efforts come after the pandemic nearly decimated its core service offering. Rides on app dropped as low as 94% on the app in March in the U.S and served as a wake-up call for the company to modify its business model or drown. Diversification plays an important factor in the future success of the company and Uber stock.
Diversification Is Key For Uber Stock
If there’s anything this pandemic has taught businesses, it’s that having the ability to pivot your business model to align with the needs of the customer is crucial for survival. Brick-and-mortar companies were forced to go virtual and tech giants like Uber needed to expand its offering.
Uber’s entry into the food delivery space is just the first step in the company’s diversification efforts and is a trend that is expected to continue well into the future. According to a recent interview by NDTV, Uber’s CEO stated the company’s split between ride-hailing and other businesses is “going to be 50-50.”
Uber’s efforts to keep with the current times through its acquisitions, makes this stock a great investment. However, only time will tell if the company is able to successfully scale its business and capture a greater share of the food delivery market. For now, we recommend you stay invested in Uber stock as the company continues to make some aggressive plays.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.
