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Uber Aims to Capitalize on Eats Growth With Grocery, Package Services

Uber's Eats food delivery business grew 53% last quarter amid rising demand for food delivery.
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Uber is going full steam ahead, despite a steep drop in demand for its core ridehailing business. 

The ridehailing giant reported a $2.9 billion net loss and revenue roughly in line with expectations for the March quarter. But it's hoping to capitalize on healthy growth in its Eats business by expanding into new categories, such as grocery and package delivery. Uber  (UBER) - Get Uber Technologies, Inc. Report shares rose 6.5% in after hours trading Thursday following its quarterly release. 

Despite plunging demand for ridesharing, Uber CEO Dara Khosrowshahi told shareholders that its presence in the food delivery market gives it a "structural advantage" in bouncing back from the current crisis. And in the meantime, it's working on expanding into new areas outside of ridehailing. 

"The business that we have of Eats, and the category in general, just looks like it's going to be substantially increased, and some would say by multiples," he said. "And then with grocery we've already started with some essentials as it relates to Eats. We've got grocery coming in, and then we're developing some new services such as Uber Connect and Uber Direct where retailers can send packages and also we can send B2B packages as well."

Uber announced plans to acquire Cornershop, a grocery delivery platform focused on Latin America, in October 2019. It's also offered delivery of a limited range of essential grocery items through Uber Eats during the pandemic.

"We don't have to look far for very substantial continuing growth going forward," Khosrowshahi added. 

Investors seemed to respond well to that message, with shares up in extended trading despite the wider-than-expected loss. But the growth of Eats, and possibility of expansion into other deliveries, would have uncertain implications for Uber's profitability prospects. Uber originally sought to report a profit by the end of this year, but pulled its full-year 2020 guidance weeks ago. 

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"Certainly Uber Eats is not going to take them where they need to go," said Eric Schiffer, CEO of the Patriarch Organization. "The grocery model is an interesting one, and there’s demand, but they have to be able to prove they can execute a consumer experience that wont be odious." 

Uber reported an adjusted loss of $313 million in its Eats segment last quarter, and analysts note that it faces many competitors in the category, such as DoorDash, Grubhub and others. It recently closed its Uber Eats business in several countries where competition was particularly heavy. 

On Thursday's call with shareholders, Khosrowshahi also struck an optimistic tone on the possibility of a recovery to its core ridehailing business, noting an uptick in gross bookings in Georgia and Texas, where businesses have reopened. 

Investors shouldn't assume that signals a lasting recovery, Schiffer noted. 

"I think that’s based on a premise that people are going to be comfortable in the future, but doesn’t consider that opening up these states will open up new cases that will make people fearful again," he said. "People would rather drink disinfectant than ride in an Uber right now."

Uber argued that having a more diversified base of offerings will make for a stronger recovery when, eventually, life returns to normal. Khosrowshahi said that grocery delivery is a large market with healthy margins, at least in Latin America; in the U.S., "the category is so big that we think that there's going to be room for more than one player," the Uber chief said. 

Success is far from a foregone conclusion, Schiffer said. 

"The question will be can they innovate out of this fast enough to not be slammed to the teeth," he added.