Khosrowshahi said Uber’s food delivery service, Uber Eats, will focus on organic growth rather than acquisitions.
On Aug 1, Square announced an agreement to sell Caviar to Uber Eats’ formidable rival DoorDash for $410 million. Square had bought Caviar for just over $44 million in 2014. The Caviar service specializes in premium restaurants.
While declining to comment further on Caviar, Khosrowshahi did say that he sees food delivery as a real battle this year and next. “The Eats market continues to be very competitive.”
Khosrowshahi said that if Uber were to seek any acquisitions, he’s not worried. “We’re Uber, everyone wants to talk to us.”
After the Wall Street close Thursday, Uber posted a much wider-than-expected second-quarter loss of $4.72 per share. Revenue of $3.17 billion was also missed analyst estimates.
Uber’s core ride-hailing business saw better-than-expected gross bookings for the quarter, while the newer Uber Eats unit’s gross bookings fell short of forecasts.
“So with rides, I say the competitive environment is stable and getting better,” Khosrowshahi said during Friday’s CNBC interview. “We see a lot of competition with Eats,” he reiterated.
Fast forward to Square’s recent second-quarter earnings report, and the company just announced that it would sell Caviar to DoorDash for $410 …
Five years ago Square (NYSE: SQ) bought food delivery service Caviar for $44.3 million. At the time, Square CEO Jack Dorsey declared that “Caviar’s curated, seamless delivery experience is exactly the kind of service we want to provide buyers and sellers.”
Fast forward to Square’s recent second-quarter earnings report, and the company just announced that it would sell Caviar to DoorDash for $410 million. The sale nets Square a nice profit, but why is it divesting this once-promising business?
Caviar was destined to disappear
Square initially bought Caviar to expand its ecosystem beyond digital payments. That ecosystem — which now includes the e-commerce services platform Weebly, its Square Capital lending arm, Instant Deposit services for sellers, its Cash App, and more — locks in merchants and consumers.
But Caviar never gained much ground in the crowded food delivery market. Four services — DoorDash, Grubhub (NYSE: GRUB), Uber (NYSE: UBER) Eats, and Postmates — controlled 94% of the U.S. food delivery market in June, according to Second Measure.
Everyone else, including Caviar and Amazon‘s (NASDAQ: AMZN) recently shuttered meal delivery platform, clashed over the remaining sliver. If even Amazon failed to gain ground with the support of Whole Foods and its e-commerce ecosystem, it seemed unlikely that Caviar could succeed. Selling Caviar could also help Square sidestep the recent PR debacles regarding tips, hidden fees, and misbehaving couriers which have plagued the market leaders.
But what about Zesty and Square for Restaurants?
Square’s retreat from the meal delivery market is reasonable, but the company has sent investors mixed signals over the past few years. In 2016 Bloomberg claimed that Square was in talks to sell Caviar to Grubhub, Uber, or Yelp. But in 2018 the company seemed to double down on Caviar by acquiring corporate catering start-up Zesty and launching Square for Restaurants.
Square integrated Zesty’s assets into Caviar for Teams, which expanded the service into the corporate catering market. Square for Restaurants, which bundled Caviar with its other payment and analytics services, targeted similar all-in-one platforms like Grubhub.
It’s unclear if Square will retain Zesty’s services or transfer them over to DoorDash. However, Square plans to keep running Square for Restaurants, which is already integrated with Caviar, DoorDash, and Postmates. During the conference call, Dorsey noted that Square for Restaurants and Square for Retail were both attracting “a number of larger sellers.”
Square is selling Caviar to DoorDash for a mix of cash and preferred DoorDash shares. So as an investor, Square can still profit from DoorDash’s growth, while eliminating its exposure to the low-margin food delivery market. Caviar and DoorDash are already integrated into the Cash App, so DoorDash’s expansion could also support Cash’s market growth.
Is this good news for Square’s investors?
During the conference call, CFO Amrita Ahuja noted that Caviar had a “lower gross margin profile” than its other subscription and services, with courier fees and revenue-sharing deals with restaurants accounting for the “largest component” of the unit’s costs.
Ahuja noted that Caviar was the second largest component of its subscription and services revenue, which rose 87% annually to $251 million during the second quarter. The Cash App generated the most revenue, and Square Capital ranked third. Ahuja stated that Square would update its guidance after closing the deal.
Removing Caviar from that mix will temporarily throttle Square’s subscription and services revenue growth, but improve the unit’s profitability. Dorsey noted that the sale would enable Square to make additional investments and strengthen its core payments business, which could widen its moat against rivals like PayPal.
All things considered, Square’s decision to sell Caviar was a smart move. The company reaped a handsome profit from the deal, divested a lower-margin business, gained a stake in a high-growth start-up, and freed up more cash for investments in its core payment services.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Amazon, Grubhub, and Square. The Motley Fool owns shares of and recommends Amazon, PayPal Holdings, and Square. The Motley Fool has the following options: short October 2019 $97 calls on PayPal Holdings and short September 2019 $70 puts on Square. The Motley Fool recommends Grubhub, Uber Technologies, and Yelp. The Motley Fool has a disclosure policy.
DoorDash ($DOORDASH) is taking its business model of delivering for the biggest restaurant chains in the US and bringing it to smaller organizations …
DoorDash ($DOORDASH) is taking its business model of delivering for the biggest restaurant chains in the US and bringing it to smaller organizations with its Caviar acquisition, which it made Thursday August 1 from payment company Square ($NYSE:SQ).
The market isn’t in love with the move for Square, and its shares dropped more than 10% at Friday’s market open, which also followed the payment company’s earnings, and included disappointing forward-looking projections. But investors in DoorDash should be estatic, judging by what the alternative data says about each company – and how it highlights a new path toward growth for DoorDash.
Caviar isn’t just another ordinary food delivery company and DoorDash’s deal also positions it before a completely different kind of market, with precisely the same service. Why else would a company with a footprint so much bigger than its $410 million target spend to buy into areas in which it already has operations? Our map below (use the key in the top-righthand portion of the map to switch between Caviar cities and DoorDash towns) illustrates the scale of the two companies.
Next, zoom in on locations like New York City, and Philadelphia. Caviar operates in about 220 different jurisdictions – but DoorDash operates in more than 4,000, according to alternative data gathered from each and tracked by Thinknum. The difference in scale, measured against how many business partners Caviar and DoorDash have independently, also illustrates the difference between their business models.
As early as it’s launch, Caviar’s average order size was $80, the company told TechCrunch – that’s because it partnered with higher-priced restaurants, including Momofuku. But DoorDash’s ordinary order size is likely a bit lower, thanks to the fact it partners with larger companies that tend to produce less expensive meals – like McDonalds ($NYSE:MCD). DoorDash also has partnerships with chain restaurants including Mickey D’s, Starbucks, Taco Bell, KFC and Dunkin’ – to name just a handful of many. Consider the map above before you check out the chart below – DoorDash is partner with 7,900 businesses, according to its alternative data; but Caviar, as the chart below shows, has more than 6,400 partners. It is because Caviar isn’t partner to many bigger establishments – just smaller restaurants, which is a part of the market DoorDash didn’t support, until this morning.
What does it mean? It means that, when people are looking for a reasonably-priced meal from a reliable chain at a low cost, DoorDash has them covered. And, when you’re loaded with cash and up for having a fancy meal delivered, it means DoorDash also has you covered. At a time when more Americans are leaning into delivery, and younger consumers are opting out of automobile ownership, DoorDash is positioning itself before consumers as one-stop menu for all things breakfast, lunch, and dinner.
Our final chart tracks a key metric potential IPO investors in DoorDash will find intriguing – the company nearly doubled its headcount in 2019 alone, according to its LinkedIn ($NASDAQ:MSFT) Employee Headcount tracking. The company has not reportedly taken steps to file an S-1, but at this rate of growth trajectory, it may not make sense to wait much longer.
About the Data:
Thinknum tracks companies using information they post online – jobs, social and web traffic, product sales and app ratings – and creates data sets that measure factors like hiring, revenue and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.
On-demand food delivery service DoorDash has purchased higher-end competitor, Caviar, from its current owner, payments company Square.
On-demand food delivery service DoorDash has purchased higher-end competitor, Caviar, from its current owner, payments company Square. The deal, for $410 million in cash and stock, was announced yesterday and is expected to close sometime this year.
Founded in San Francisco in 2012, Caviar has differentiated itself in the online food delivery space with its premium restaurant offerings, as its name implies. Trendy restaurants like Hayes Valley Spanish spot Barcino and Del Popolo’s wood-fired pizza truck deliver only through Caviar.
In 2014, Square bought the whole Caviar package for about $90 million in stock. The mobile payments company, run by Twitter CEO Jack Dorsey, has operated Caviar since then, but now it’s getting out of the rapidly consolidating mobile delivery market with its sale to DoorDash.
Founded in 2013, DoorDash is much larger in scale and scope than Caviar. The business, which operates in all 50 states and 4,000 cities, is backed by $2 billion in funding — and it’s more than happy to deliver food and drinks to customers from Starbucks and McDonalds.
“Adding these [Caviar] merchants to our platform will complement DoorDash’s merchant selection, ensuring we can cater to everyone and every occasion,” DoorDash CEO Tony Xu said according to a press release yesterday.
In recent weeks, Xu has faced mounting criticism over DoorDash’s tipping policy. Independent contractors who deliver DoorDash orders haven’t received the full tip amount left by customers, a practice intended to help couriers meet delivery minimums. Last week, amid blowback, Xu announced plans to change that system.
What the DooorDash acquisition of Caviar will mean for customers and restaurants remains to be seen. But the move represents further consolidation in fast-tightening market. Going forward, competitors UberEats, GrubHub/Seamless, and Postmates, which could soon go public, will duke it out for delivery couriers, restaurant clients, and customers.
The market for Bay Area-based online food delivery companies will shrink by just a bit, as DoorDash is buying Caviar in a deal worth $410 million.
The market for Bay Area-based online food delivery companies will shrink a bit: DoorDash is buying Caviar in a deal worth $410 million.
DoorDash Chief Executive Tony Xu announced the acquisition late Thursday in a company blog post. Xu said DoorDash made the deal because of Caviar’s standing in the on-demand food-delivery market and its business philosophy.
“Like DoorDash, Caviar is a merchant-first company,” Xu said. “Adding these merchants to our platform will complement DoorDash’s merchant selection, ensuring we can cater to everyone and every occasion.”
Caviar currently is owned by payment-processing and services company Square. Under terms of the deal, San Francisco-based DoorDash will pay Square $410 million in cash and preferred DoorDash stock for Caviar. The deal is expected to close later this year.
The deal comes as competition in the on-demand food delivery market is getting fiercer, with competitors such as GrubHub, Uber Eats and Postmates among the major companies battling for consumers’ attention and dining-out dollars. Postmates has also filed to go public, which could boost its position in the food-delivery sector.
DoorDash’s acquisition of Caviar comes as it is dealing with the fallout from a New York Times report that took a critical view of DoorDash’s policy of subsidizing the wages of its delivery staff with their tips. DoorDash has said it will soon revamp its tipping policy to ensure that delivery staffers, which the company calls “Dashers,” get the full amount of their tips on top of pre-set wages.