What's going on?
According to a Bloomberg report, ride-hailing behemoth Uber is in talks to buy online food delivery company Deliveroo – leading shares of competitor Just Eat to fall by 5% on Friday.
What does this mean?
Deliveroo, which helps restaurants get food into the homes of customers in 200+ cities who don’t want to eat out, had hinted at an initial public offering (IPO) – but appears to have been considering a sale, too (known as a “dual track”). If a sale or investment’s agreed, it’s likely to push Deliveroo above last year’s valuation of $2 billion – when it raised almost $100 million from venture capital investors.
Uber’s planning a 2019 IPO and has been considering buying competitors to lower costs (it won’t have to spend on competing against them) and make a profit. Acquiring Deliveroo would complement its competing Uber Eats business, which is in 300 cities and on track to generate tasty revenues of $6 billion this year.
Why should I care?
The bigger picture: A deal could suit Deliveroo right down to the ground.
Deliveroo may opt for a sale – being a public company’s not without its challenges, especially when the company’s yet to turn a profit (just ask Tesla’s CEO). While stocks of companies with no profit have risen more than ones with a bottom line this year, this September has seen investors switching allegiances to more predictable and profitable stocks in sectors like utilities and consumer staples.
For markets: Investors go figure.
Just Eat’s stock fell along with Dutch peer Takeaway.com. Investors are likely worried that a bigger competitor could mean Just Eat will have to spend more on marketing in order to attract new customers and keep existing ones, which could dent profits. The writing isn’t necessarily on the wall, though: fewer competitors could also mean marketing costs fall, since there’s one less company to shout over in order to be heard by hungry customers.