Uber bets on delivery with $2.65 billion acquisition of Postmates as ride-hailing suffers


In the race to gain a competitive edge in the burgeoning food-delivery business, the major players are carving up the U.S. map.

Uber Technology Inc.’s
UBER,
+5.91%

intention to acquire privately held Postmates Inc. for $2.65 billion after its failed bid for Grubhub Inc.
GRUB,
+3.33%

is a case in point.

See also: Uber to buy Postmates for $2.65 billion: reports

The takeover would help Uber Eats gain ground against privately held DoorDash Inc., the current market leader in the U.S., through Postmates’ strong sales in Los Angeles, Las Vegas, Phoenix, San Diego and Miami. DoorDash remains the dominant player in New York — where it commands more than half the local market — and San Francisco. Grubhub, gobbled up by Europe’s JustEat Takeaway.com for $7.3 billion in June, is well established in the Midwest.

“We’ve always admired Postmates, I guess, begrudgingly from afar in that it was a competitor who was able to compete aggressively and to be a leader in some very important markets with a much smaller capital base than a lot of its competition, including ourselves,” Uber Chief Executive Dara Khosrowshahi said on a conference call Monday to discuss the deal.

A merged Uber-Postmates would control about 37% of the national market, versus DoorDash’s 45%, based on data from Edison Trends. Postmates’ presence has declined in the face of withering competition from deeper-pocketed competitors. In June, it had a market share of about 8%.

Market consolidation has been inevitable as the coronavirus pandemic accelerates public adoption of food delivery, and companies like Uber diversify their businesses amid a massive slump in ride-hailing revenue.

A land grab was necessary in the U.S., Forrester analyst Sucharita Kodali says, because the European market is already consolidated. In April, Amazon.com Inc.
AMZN,
+5.37%

received provisional approval for its $575 million investment in UK-based startup Deliveroo.

Wall Street heartily applauded Uber’s move, sending its shares up 5% in early-afternoon trading. Grubhub’s stock is up 2%.

Uber, which announced 3,000 additional layoffs following an 80% drop in ride volume in April, signaled a hard pivot to food delivery. Gross bookings for its Eats business were up 52% year over year in the first quarter. (Bookings on Uber Eats more than doubled in the second quarter, Khosrowshahi said Monday.)

“At a time when our Rides business is down significantly due to shelter-in-place, our Eats business is surging,” Khosrowshahi said on the company’s earnings call in early May.

See also: Uber loses nearly $3 billion in three months, but stock rebounds after hours

Uber, which has been looking under the hood at several food-delivery companies for more than a year, initially set its sights on Grubhub. But neither side could agree on a selling price, and the combined operation would have surely faced antitrust scrutiny as the unquestioned market leader.

At the time, Wedbush Securities analyst Ygal Arounian said any buyer of Grubhub would acquire market share in New York, Boston and Chicago “at a premium, in order to speed up rationalization through market-share dominance.”

Read more: Opinion: Uber plus Grubhub called ‘a new low in pandemic profiteering,’ and that’s not the only problem

Postmates, which has flirted with an initial public offering, should greatly help Uber expand delivery into more groceries and other small goods, according to Uber. Postmates recorded $107 million in revenue from $643 million in gross bookings in the first quarter of this year, according to a presentation during Monday’s acquisition announcement.

“Postmates, which is the clear #4 player behind DoorDash, Uber Eats, and Grubhub, would be both a defensive and offensive acquisition in the food delivery space for Uber at a time with its core ride-sharing business seeing massive headwinds in this COVID-19 pandemic,” Wedbush analyst Dan Ives said in a note Monday.

For consumers, ultimately, consolidation could lead to more efficient delivery systems at lower costs, says Rebecca Allensworth, a law professor at Vanderbilt University.



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The ‘work-from-home’ ETF is here. Get ready for some surprises.


For all the weirdness of the past few months — the Zoom fatigue, the challenge of caring for children and pets and aging parents alongside co-workers — the coronavirus pandemic that’s kept millions of white-collar workers in their homes, not their offices, has presented new opportunities.

It seemed only a matter of time before someone launched an ETF for that, and on Thursday, that fund, the Direxion Work From Home exchange-traded fund — sporting the ticker WFH
WFH,
+0.13%

, naturally — will start trading.

As it does, a look at what’s inside the portfolio shows some surprises. For such a clearly delineated theme that squares so neatly with the reality of life for so many right now, one of the biggest ironies is how nuanced the fund’s holdings actually are.

The fund is made up of 40 equally-weighted companies ranging from old standbys like Amazon.com Inc.
AMZN,
+0.40%

and Microsoft Corp
MSFT,
+0.76%

to the lesser-known, like Proofpoint Inc.
PFPT,
-1.36%

and Perficient Inc
PRFT,
-0.75%
.

It has of-the-moment pandemic darlings, like Zoom Video Communications Inc.
ZM,
+1.00%

— and some old guards like Hewlett Packard Enterprise Co
HPE,
-0.10%
.
And its reach stretches from Shenzen, China, with companies like Xunlei Ltd.
XNET,
+2.54%

, to Cincinnati Bell Inc.
CBB,

“This is global in nature, and the benefit of what they’ve done is not just picking the poster children of the working-from-home phenomenon,” said Todd Rosenbluth, head of ETF and mutual-fund research for CFRA. “This fund gives you a mixture of up-and-comers whose business model is being driven by that theme, and some megacaps that will get stock price growth from many things. This is not really a pure-play work-from-home ETF, which I think is positive.”

Direxion says the fund will focus on companies that fall into four buckets representing sub-themes: remote communications, cyber security, project and document management, and cloud technologies.

Rosenbluth also thinks WFH should sit in an investing sweet spot. As an index-based fund, it offers more diversification, and the benefit of stock-picking from an experienced management team, than if investors were to try to select individual stocks themselves.

But it’s a lot less idiosyncratic than many actively-managed funds, most notably some of the ones run by a company like ARK Invest, which represent strong convictions by a small management team about clear winners among innovative technology leaders.

Related: Wall Street’s road warriors have spent the past three months grounded. How’s that working out?

Still, this ETF, like any fund, will have to prove itself. “I don’t think any investors would dispute that we are going to be working from home and thus using the benefits of cloud computing and telecoms,” Rosenbluth said in an interview. Investor interest and flows into the fund will likely be robust because most people agree with that thesis, he noted.

But what will keep people invested is the performance of the individual companies, and thus the fund’s overall returns, Rosenbluth said.

As ARK’s CEO, Cathie Wood, told MarketWatch in early June, even her team struggles to understand how much of a moat some of the early technology winners really have.

WFH will charge a 45-basis point fee, track the Solactive Remote Work Index, and rebalance semiannually.

See:The first — and only — negative-fee ETF didn’t make it. Here’s what that tells us about investing.



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Here’s the revenue hit Facebook will take as Diageo and Starbucks join the list of companies pulling ads from platform


Diageo and Starbucks just became the latest companies to halt advertising on social-media platforms over ineffective policing of hate speech.

Shares of Facebook Inc.
FB,
-1.73%
,
which operates Instagram and WhatsApp in addition to its namesake platform, erased early losses to rise 0.6% in midday trading, while Twitter Inc. shares
TWTR,
+0.19%

rallied about 2%. Both stocks took big hits Friday after other advertisers paused spending.

“Diageo
DGE,
-1.87%

strives to promote inclusion and diversity, including through our marketing campaigns. From 1 July we will pause all paid advertising globally on major social-media platforms. We will continue to discuss with media partners how they will deal with unacceptable content,” the U.K.-based spirits and beers maker said in statement.

On Sunday, coffee giant Starbucks
SBUX,
-0.33%

said it was “pausing” advertisements on all social-media platforms, and would “continue discussions internally, with our media partners and with civil-rights organizations in the effort to stop the spread of hate speech.” On Friday, Unilever
UN,
+1.23%

ULVR,
-2.33%

said it would halt U.S. advertising on Facebook and Twitter through year-end. Its Ben & Jerry’s ice-cream unit had previously announced a Facebook ad pullout.

Coca-Cola
KO,
+0.13%

said on Friday that it would “pause paid advertising on all social-media platforms globally for at least 30 days.” On Saturday, another iconic American brand, Levi Strauss & Co.
LEVI,
-2.55%
,
announced on Twitter that it, too, it would pause ads on Instagram and Facebook:

Late Friday, Facebook Chief Executive Mark Zuckerberg announced policy changes, during a “virtual town hall,” to hide or block content considered hateful or that could harm voting, with no exception for politicians, an approach Twitter has previously applied to the high-profile account of President Donald Trump and others. Twitter hasn’t been as consistently a target of the boycott call but has come under a new wave of scrutiny, and shares have fallen alongside those of Facebook.

“We invest billions of dollars each year to keep our community safe and continuously work with outside experts to review and update our policies,” a Facebook spokesman said Monday. “We know we have more work to do.”

The spokesman added that the company will continue to work with civil rights groups and other experts “to develop even more tools, technology and policies to continue this fight.”

Twitter’s vice president for global client solutions Sarah Personette said in a statement that the company’s mission “is to serve the public conversation and ensure Twitter is a place where people can make human connections, seek and receive authentic and credible information, and express themselves freely and safely.” She added that Twitter is “respectful of our partners’ decisions and will continue to work and communicate closely with them during this time.”

Read:Facebook’s Zuckerberg was reportedly talked out of making moves against Trump as far back as 2015

The boycotts stem from a #StopHateforProfits campaign announced by a coalition of civil-rights and other groups, including the Anti-Defamation League and the National Association for the Advancement of Colored People, which has asked Facebook advertisers to show that they won’t support companies that prioritize profits over safety.

Since the launch of the campaign, the list of companies opting to pause advertising is growing, but Facebook is still looking at less than a 5% hit to revenue, said Rohit Kulkarni, executive director at MKM Partners, in a note to clients.

Firstly, he said Facebook makes the bulk of its revenues from mobile direct ads and small-business marketing. “FB has more than 160 million registered businesses globally and 8 million paying advertisers,” said Kulkarni, who noted that Ad Age’s 100 biggest advertisers spend less on a proportionate basis with Facebook.

“Procter & Gamble
PG,
+0.75%

is the largest advertiser in the world, but we think it accounts for less than 0.50% of FB’s revenues,” Kulkarni said. Due to COVID-19, he said MKM had already expected leading advertisers to scale back on spending in the second half of this year, “implying a lower marginal headwind” for Facebook. Wall Street is estimating 1% year-over-year growth in the second quarter and 7% in the third. “We believe near-term Street estimates are reasonable and that there is upside potential given ad market recovery.”

He said Snapchat parent Snap Inc.
SNAP,
-2.10%

could benefit from “near-term uncertainty with advertiser policies related to [Alphabet-owned
GOOGL,
+1.93%

GOOG,
+1.85%

YouTube] and Instagram.”

Tim Rostan contributed to this report.



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Here are the major brands that have pulled ads from Facebook


Since an advertising boycott of Facebook Inc. was organized in mid-June, a veritable Who’s Who of major brands have either added their names to the #StopHateForProfit campaign or otherwise pulled their ads.

Facebook makes almost all of its revenue via advertising. Still, analysts are expecting the company to take a less-than-5% revenue hit due the boycott. The social-media giant has more than 8 million paying advertisers, Rohit Kulkarni, executive director at MKM Partners, noted this week in a note to clients.

Civil rights groups have called on large advertisers to pause their Facebook advertising for the month of July, to protest what they say is the company’s inability to properly rein in racist and violent content and misinformation.

Facebook shares
FB,
+2.91%

are down 2.4% over the past month, but are up nearly 11% year to date, compared to the S&P 500’s
SPX,
+1.54%

4% decline this year.

Of the nearly 300 companies worldwide that have joined the ad boycott, some of the most prominent include:

Adidas AG
ADDDF,
+2.06%

*

Arc’teryx

Ben & Jerry’s Homemade Holdings Inc.

Beam Suntory Inc.

Birchbox

Blue Bottle Coffee Inc.

Blue Shield of California

Chobani

Clorox*
CLX,
+0.82%

Coca-Cola Co.
KO,
+0.72%

Dashlane

Denny’s Corp.
DENN,
-1.27%

Diageo plc
DGEAF,
+2.68%

Eddie Bauer LLC

Eileen Fisher

Ford Motor Co.
F,
+1.16%

Hershey Co.
HSY,
+1.57%

Honda Motor Co.
HMC,
-0.07%

HP Inc.
HPQ,
+1.75%

JanSport

Levi Strauss & Co.
LEVI,
+1.20%

Magnolia Pictures

Massachusetts Mutual Life Insurance Co.

Microsoft Corp.
MSFT,
+2.55%

Patagonia Inc.

Patreon

Pfizer Inc.
PFE,
+0.18%

Puma SE
PMMAF,
+2.02%

The North Face

Recreational Equipment Inc.

SAP
SAP,
+1.13%

Starbucks Corp.
SBUX,
+0.15%

Upwork Inc.
UPWK,
+1.40%

Unilever
UL,
-0.70%

Vans

Verizon Communications Inc.
VZ,
+0.80%

Vertex Pharmaceuticals Inc.
VRTX,
+1.79%

* Pulled ads, but have not formally joined the campaign.



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Micron shows how the cloud is saving chip makers


Memory-chip maker Micron Technology Inc. was saved by a boom in data centers, adding to chip makers’ growth as the pandemic forces more companies to expand their cloud computing capabilities.

On Monday, Micron
MU,
+1.35%

reported better-than-expected fiscal second-quarter earnings and had a stronger outlook for the next quarter, despite some issues with the global supply chain due to the COVID-19 pandemic. Micron’s shares jumped nearly 6% in after-hours trading. At Monday’s close, Micron was trading at $49.15, down 8.62% for the year but a huge recovery from its plunge in March, when it hit a low of $31.13 in the early days of the pandemic.

“We continue to see healthy demand trend in cloud in the second half of the year,” Micron Chief Executive Sanjay Mehrotra told analysts on a conference call. “Cloud is still actually in early innings, and long-term trends for cloud are strong.” In the second quarter, the company said that the work-from-home economy, e-commerce and videogame streaming all drove a strong surge in demand for more cloud-computing capabilities.

Micron’s comments echo those that other chip giants, such as Intel Corp.
INTC,
+1.33%

and Nvidia Corp.
NVDA,
+0.49%

NVDA,
+0.49%
,
made last quarter. On Monday, Xilinx Inc.
XLNX,
+1.03%

joined the crowd when it updated its guidance for its fiscal first quarter, noting that strong performance in wireless and data center were offsetting weakness in consumer segments.

In the second half of the year, Micron said that it expects demand for consumer technology products such as PCs and smartphones to improve. That’s in part due to the ongoing rollout of 5G networks, which will drive demand of new smartphones that have more dynamic random access memory (DRAM) chips, compared to 4G-network phones. The company said that average selling prices of both DRAM chips and NAND flash memory were up sequentially from the previous quarter.

One issue hovering over the company, and indeed most chip makers, is the growing rise in inventories, both by Micron and its customers, especially in the smartphone market. When asked by an analyst about the growing inventories, Mehrotra said its customers are trying to prepare for when consumer demand returns.

“Customers want to be prepared to supply the smartphone demand” when it returns, he said. “So, overall, you know, it’s a mixed picture with respect to the inventory on the customer front. Cloud inventories are in decent shape,” while mobile inventories are “somewhat in anticipation of demand.”

NVDA,
+0.49%

The chip industry has been amazingly resilient during the coronavirus pandemic, and most of the demand is due to data centers and the demand for more cloud computing. If the PC and smartphone markets return to growth, there could be even more upside for chip makers such as Micron. But for now, the sure thing is centered around the data center.



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