Breakingviews: Uber’s deal chest would be well spent on groceries

Uber Technologies can shift into dealmaking gear. The $150 billion ride-sharing firm’s stock is richly priced, even after dipping 9% on slower booking growth revealed Thursday. That gives Chief Executive Dara Khosrowshahi a valuable currency to spend – say, on a mooted approach for flight-booking portal Expedia. Thing is, there are better targets, like grocery-delivery app Instacart.

Uber has kicked the tires on $21 billion Expedia, the Financial Times reported, though Khosrowshahi now says his company would likely stick with the small and familiar on M&A. Despite protestations, the appeal of striking big deals now is obvious. Uber’s nearly 69% stock rise in a year brings it up to a heady valuation of 21 times estimated next 12 months EBITDA, according to Visible Alpha. Expedia trades at a mere 7 times.

Still, while a tie-up would further experiments at Uber like rolling out UK flight booking, Khosrowshahi is right to sound cautious. Expedia is more of a pure intermediary than Uber’s self-reinforcing network, which recruits new drivers to serve passengers and restaurants. Pivoting might seem worryingly insecure. After all, robotic taxis like Alphabet’s Waymo and Tesla’s Cybercab threaten Uber’s core business. Thursday’s share dip came despite rising profit, a sign of fear that slowing growth means travelers are opting for alternatives.

In that context, strengthening and expanding core services, like Uber Eats food delivery, is a more reassuring plan. The $11 bln Instacart already works with Khosrowshahi’s firm but acquiring it would better integrate grocery ordering functionality and be one way he can “strategically invest” in the sector. It’s cheap: a 30% premium, representing a $3.5 billion bump, entirely in stock would leave Uber’s shareholders owning 90% of the combined company. That would value Instacart’s enterprise at 14 times 2025 EBITDA, a discount to Uber’s multiple, but well over where shares have traded since its 2023 IPO.

If Khosrowshahi can snip administrative expenses and half of operating and sales spending, he’d get $1 billion in synergies, worth over $7 billion taxed and capitalized to Uber’s shareholders, ably covering the premium. A deal would also boost Uber’s efforts to catch food-delivery leader DoorDash. The company led by Tony Xu sports a higher multiple and is expanding into dry goods and sundries.

Besides, M&A is Khosrowshahi’s wheelhouse. He worked under media mogul Barry Diller at deal machine IAC, after a stint as at Allen & Co. He knows the rules of the road.