Hot on the heels of Uber Technologies Inc.’s investment in LimeBike Inc., a new report claims that the ride-sharing giant has set its sights on another rival: Grubhub Inc.

The Wall Street Journal today cited sources as saying that Uber is in talks to acquire the publicly traded food delivery provider, which competes with its Eats business and had a market capitalization of $4.5 billion on Monday. Grubhub’s share price has since surged more than 34% on the reported deal negotiations.

Grubhub is looking to sell each of its shares for 2.15 Uber shares, according to the Journal, while Bloomberg reported that a deal could be clinched this month. The negotiations are said to have started sometime earlier this year with Uber approaching Grubhub.

Uber disclosed in its most recent earnings report that its Eats business saw revenues surge 53% during the first quarter, to $819 million. Eats lost $313 million in the same period.

Grubhub’s revenue rose a more modest 12% in the first quarter, to $363 million, but the company has an edge in one key area: It was profitable before the onset of the coronavirus pandemic. Grubhub expects to return to the red in the second quarter with a projected adjusted income of $5 million before before interest, taxes, depreciation and amortization.

Buying Grubhub would not only grow Eats’ share of the food delivery but could also bring the business, and thereby Uber as a whole, closer to profitability. The deal would align with the objectives Uber Chief Executive Officer Dara Khosrowshahi laid out during the company’s February earnings call. The CEO told investors that the plan for Eats is “turning the dial toward healthy growth, market leadership and margin expansion, significantly curtailing losses throughout the year.”

In the shorter term, absorbing Grubhub would better position Uber to capitalize on the surging demand for delivery services. According to April data from research firm Second Measure, spending on meal delivery services in the U.S. jumped 70% year-over-year during the last week of March.

“We note cost pressures that have surfaced for GRUB following the 3Q19 turning point in strategy that have only intensified since the pandemic began,” Cowen & Co. analysts wrote in a note to clients. “We believe consolidation makes sense as scale and reduced competition can help ease cost pressures.”

While Uber and Grubhub are reportedly discussing a merger, smaller players are also taking steps to address the increased demand for their offerings. Restaurant delivery startup Cheetah Technologies Inc. last month closed a $36 million round backed by Iconiq Capital, while British meal-kit provider Gousto, officially SCA Investments Ltd., earlier raised $41 million. 

Photo: Uber