In Focus: What's Old is New Again
On a day in April 2001. workers across several U.S. cities woke up and performed their normal morning routine. A routine they had performed many times before, and likely the same one you and I do today to get ready for work. Those workers arrived at their place of employment to find the doors locked and their employer, Kozmo.com out of business.
Kozmo.com, the company that promised to deliver CDs, DVDs, video games, and even Starbucks Coffee within an hour was out of business. It's plans to revolutionize the online delivery business came to an end after mounting losses and little revenue. The failure costs 1100 employees their jobs.
Flooz.com suffered a similar fate to Kozmo in August 2001 after failing to get people to adapt to its version of e-currency.
Then there was Webvan, which was going to be the way the world would have its food delivered. Get big fast was the Webvan motto, and it did just that. The company opened locations across the U.S. even before proving the ideal worked in its origin city. After suffering over $800 millions of loss the company filed for bankruptcy and shut down in June 2001.
Between Kozomo, Flooz, and Webvan billions of dollars were lost, on what were considered bad ideas at the time.
In 2020 all of these concepts are back,but is the market mature enough for these concepts to be sustainable?
Uber Eats, Grubhub, Postmates, DoorDash, and Cavier are just some of the new versions of Kozmo. Insert any number of finch companies here and add the cryptocurrency market as well, all are the new and improved Flooz, and Instacart is attempting to pick up where Webvan left off.
Uber's transition from taxi service first, food delivery services second to food delivery first was forced by the coronavirus pandemic, but with so many others in the space, can Uber become a profitable enterprise?
Uber is already a publicly traded company with a market capitalization of $54 billion, which is much higher than many of the companies that went bust in the early 2000. But that doesn't mean it can't go bust.
In an effort to boost growth, consolidate the market, and possibly find a path towards profitability Uber has made a bid for Postmates for $2.65 billion, after failing to complete an acquisition of Grubhub earlier in the year. The Uber-Postmates deal is expected to close in early 2021.
Prior to Uber's bid for Postmates, the valuation of Postmates was ~$2.4 billion, and Postmates was said to be weighing it's options between a traditional IPO, being acquired, or going public via a SPAC. Then there is DoorDash, which was valued at ~$12 billion according to TechCrunch.
Instacart was valued at $14 billion in June of 2020, after a new round of fresh funds found its way to the company to help it meet the demand caused by the pandemic.
In these cases of new names-old ideas, we've seen the pandemic really accelerate growth, but how will these companies look and operate when the pandemic is over?
Is Instacart a $14 billion company in a post pandemic world? Does the Uber-Postmates union make sense for Uber or Postmates when people are free to go out and dine-in with no restrictions?
Webvan failed because of it's get big fast motto, which was indoctrinated into how it ran the business and spent money. The company spent money to build warehouses, and purchased HomeGrocer, a struggling competitor for $1.2 billion.
In the reincarnation of delivery-as-a-service, today's companies are leveraging the infrastructure that's already in place by partnering with already established brands. Instacart isn't getting into the grocery business, it's just delivering groceries from already established grocery chains, and the same goes for Uber Eats, Postmate, and GrubHub, delivering food from established fast food chains and restaurants.
The companies in the early 2000s also had to battle the newness of the internet. At that time only 52% of U.S adults were internet users according to PewResearch. In 2019, 9 out of 10 U.S. adults were internet users. Also, in the early 2000s the internet wasn't as mobile as it is today. What we can do in a few seconds on an app, took several long painful minutes for people in early 2000 to do on a PC. Today's environment is much more favorable for deliver-as-a-service, but is it favorable enough?
In 2018, well before the coronavirus pandemic Instacart was valued at $8 billion. Uber Eats was the side dish to what Uber was serving customers. To end 2019, deliveries represented 22% of Uber's gross bookings and 29% of gross bookings in Q1 2020. But for Q2 2020 it was 68% of gross bookings. The increase was warranted, because the service was deemed essential in many locked-down cities during the beginnings of the pandemic.
The worry now is that investors will pay pandemic premiums and be stuck with pre and post pandemic results.
Uber's stock price traded to $40 pre-pandemic and now bounces around $30 to $33 per share. Investors have not been euphoric about the Postmates deal and the recent problems in California have made other investors cautious.
Grubhub currently trades at $76.33 per share, still well off it's $129.00 high from 2018.
The pandemic has made old, failed ideas the talk of Wall Street, but life after the pandemic will tell the story of these companies. For now we wait to avoid investing in this decades Webvan.