Uber shares tumble 5% as reports indicate it will lose Grubhub deal to European rival

Alex Wilhelm
Grubhub Inc. signage is displayed on an Apple Inc. iPhone in an arranged photograph taken in the Brooklyn borough of New York, U.S., on Friday, Jan. 10, 2020. Wall Street is weighing reports that Grubhub Inc. is exploring strategic options in the midst of intense competition and steep discounts, giving fresh impetus to the idea that food-delivery companies have no choice but to merge or acquire. Photographer: Gabby Jones/Bloomberg via Getty Images

Update: Just Eats Takeaway confirmed today in a release that "it is in advanced discussions with Grubhub regarding an all-share combination of Just Eat Takeaway.com with Grubhub ." More when we have it.

Reports this morning indicate that Uber, the American ride-hailing giant with a global footprint, will lose out on its attempt to buy Grubhub, an American food ordering and delivery service. Uber competes with Grubhub domestically with its Uber Eats service; a tie-up between the two could have given Uber suffocating market share in the United States, and thus improved economics.

Losing Grubhub to European-rival Just Eat Takeaway -- the Wall Street Journal broke the news -- is difficult news for Uber. Its shares are off nearly 5% today after the news while Lyft, its local rival in ride-hailing, is off a more modest 2.5%.

Reports last week named two European companies as potential acquirers of the American company; the story of Uber losing out to a different company in its pursuit of Grubhub intensified this morning when CNBC reported that the ride-hailing company could drop its bid over anti-trust concerns.

Investors are less than enthused that Uber failed to close the Grubhub deal, if reports hold up.

The why is simple enough: Without Grubhub, Uber Eats is merely another money-losing food delivery service that has a long maturity cycle ahead of it before it helps lower its parent company's unprofitability. Ride-hailing, Uber's traditional bread-and-butter, and source of positive contribution margin, is currently recovering from pandemic-driven lows.

But without Grubhub and a greater ability to squeeze money from restaurants that more market might have afforded Uber, its near-term economics may prove slow to improve. Ride-hailing is coming back, but is still generating revenues lower than from year-ago totals.

With Uber Eats putting up around $100 million in negative adjusted EBITDA each month, food delivery is little help to the unprofitable megacorp.

More when the deal is announced today, if it is as currently anticipated.