This morning announced its , including 44.1 percent revenue growth to 27.5 billion RMB ($3.91 billion), and post-tax profit of 1.3 billion RMB ($189.1 million). Meituan improved from stiff year-ago losses on both an operating and net basis, making its growth and incomes all the more notable.

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The company, which provides deals, reservations, and on-demand delivery, went public last year worth around $55 billion. Today it is worth about $68 billion; shares of the company fell just over 5.5 percent in trading today, following the announcement of its results.

All that’s well and good, but what matters is that inside of Meituan Dianping’s earnings were positive notes regarding its food delivery business. Food delivery is a key growth driver for companies like and , and the entire game for firms like and . So, what Meituan has to say about the economics of food delivery matters; can the Chinese giant make it work?

It seems that the answer is mostly yes. Here are the key excerpts from its earnings report, regarding food delivery (emphasis SA国际传媒 News):

[R]evenue from our food delivery business increased by 39.4% year-over-year to RMB15.6 billion for the third quarter of 2019 from RMB11.2 billion in the same period of 2018. Gross profit from our food delivery business increased by 64.5% to RMB3.0 billion for the third quarter of 2019 from RMB1.9 billion in the same period of 2018, while gross margin expanded to 19.5% from 16.6%. Although gross margin decreased by 2.8 percentage points on a quarter-over-quarter basis due to unfavorable weather conditions, we were able to achieve positive adjusted operating profit for our food delivery business for the third quarter of 2019.

Food delivery made up about 57.5 percent of Meituan’s gross transaction volume (total platform spend) in the third quarter. Yes, the firm’s profit note regarding the portion of its business that we care the most about was adjusted profit (removing “share-based compensation expenses, amortization of intangible assets resulting from acquisitions,” along with various impairment charges), but that’s still better than nothing.

Recall that Uber and Lyft are only promising 蹿耻濒濒-产耻蝉颈苍别蝉蝉听adjusted profit to begin in 2021; Meituan Dianping is already there with its whole business and food delivery operation. Uber Eats, generated negative adjusted EBITDA (another adjusted profit metric) of $316 million off $392 million in adjusted net revenue ($645 million in un-adjusted top line). Those numbers are worse.

So What?

Meituan making money on delivery shows that it is possible to do so. And it was able to make money on food delivery in a market as competitive as China, and one that is slowing down. Turning a profit on delivery, it turns out, is not an impossible feat.

We don’t want to hold our breath for it, but perhaps if Meituan Dianping can generate adjusted profit on food delivery, others can too. (Food delivery is a crowded space in the U.S., which could complicate short-term profitability.)

It’s probably too bold to say that Meituan’s news will prompt Postmates to get off the sidelines public (Postmates’ CEO said market conditions are the reason for its delayed IPO, but it would be unusual for a company to go public in the midst of the holidays). Nevertheless, Meituan’s delivery profit is a good sign for all of the players in the space.

滨濒濒耻蝉迟谤补迟颈辞苍:听

and represent enormous bets by venture capitalists and other private investors, wagers that the companies hit on a new sort of service that could not only generate tens of billions of dollars in global use but also, in time, profits.

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However, in the period after the two companies went public this year their share prices have struggled under the weight of slower-than-expected growth, and sharp, unrelenting unprofitably. Lyft and Uber鈥檚 reported results changed the narrative surrounding the unicorns, shifting the public鈥檚 perception of the companies from impressive upstarts to expensive question marks.聽

The struggles of Lyft and Uber as public companies made related, yet-private companies like , , and even seem like less-than-likely IPO candidates. The market reception that first Lyft, and, later, Uber received also has the potential to chill private market investment into on-demand companies more broadly.

But things have improved in the last few weeks for the two ride-hailing giants, at least in terms of operating results. Each company put a stake in the ground regarding future profitability, and their recent results came in ahead of expectations.聽

Let鈥檚 examine the market reaction to all the news, and tie it back to the private companies who won鈥檛 be able to accept Uber and Lyft being their comps if and when they try to go public themselves.

Lyft

In late October, Lyft promised investors and the technology community at large that it would generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the final quarter of 2021. Its shares rose.

A week later the company , including quick revenue growth ($955.6 million, up 63 percent from $585.0 million), expanding losses ($463.5 million, up 86 percent from $249.2 million), and improving adjusted losses ($121.6 million, down 50 percent from $245.3 million).

The results , with adjusted losses per share coming in 9 cents per share better than expected ($1.57 per share instead of $1.66). Revenue also beat the $915 million street expectation.

Lyft also raised its Q4 revenue and 2018 revenue guidance, saying that it expects Q4 revenue to be between $975 million and $985 million, and revenue growth to be between 46 percent and 47 percent year-over-year. For its 2019 revenue guidance, Lyft said it expects to be between $3.57 billion and $3.58 billion, up from between $3.47 billion and $3.5 billion. Its annual revenue growth rate is also expected to be 66 percent, up from between 61 percent and 62 percent.

After rising some in the wake of the its adjusted profitability promise, the company鈥檚 shares have fallen since its earnings report. A good question is why. But before we try to answer that, let鈥檚 look at Uber.

Uber

This week Uber . As Uber is a more global company, and as it has more business lines than Lyft, it鈥檚 results are harder to parse out. So, let鈥檚 get ourselves a summary and then devote ourselves to the details.聽

The first thing to know is that Uber made a similar profit promise during its earnings call. Namely that Uber will generate full-year adjusted EBITDA in 2021. That鈥檚 better than Lyft鈥檚 claim of reaching positive adjusted EBITDA by Q4 of the same year.

Let鈥檚 look at Q3. Here are :

Revenues of $3.8 billion were better than the $3.7 billion expected, up 30 percent year over year. And looking at the bottom line, the net loss of $1.1 billion included $400 million in stock-based compensation. The total net loss came in at 68 cents a share, better, in fact, than the 81 cents a share loss expected by the Street.聽

Along with beating expectations, the company also drew a better picture of its full-year results. Uber鈥檚 full-year profitability has improved, and it鈥檚 promising to see that its losses aren鈥檛 as bad as expected.

Very simple, and very clean to understand, right? Kinda. Uber鈥檚 business is a mix of growth-y unprofitable revenue and slower-growth, more lucrative top line. Let鈥檚 quickly examine each of Uber鈥檚 newly demarcated revenue segments:

• Rides: $12.6 billion in gross bookings (+20 percent, YoY), $2.9 billion in resulting adjusted net revenue (+23 percent YoY), and $631 million of adjusted EBITDA (+52 percent YoY).
• Eats: $3.7 billion in gross bookings (+73 percent, YoY), $392 million in adjusted net revenue (+105 percent, YoY), and negative $316 million of adjusted EBITDA (-67 percent YoY).
• Freight: $223 million in gross bookings (+81 percent YoY), $218 million in adjusted net revenue (+78 percent YoY), and negative $81 million of adjusted EBITDA (-161 percent YoY).
• Other Bets: $30 million in gross bookings, $38 million in adjusted net revenue, and negative $72 million of EBITDA.
• ATG and Other Technology Programs: $17 million in adjusted net revenue and negative $124 million of EBITDA (+6 percent YoY).

From this perspective we can see that Uber鈥檚 core business (Rides being 76 percent of its revenue) generates quite a lot of adjusted profit. Enough, indeed, for Uber to claim that the sum 鈥渇ully cover[s] Corporate G&A and Platform R&D鈥� costs. That鈥檚 quite good!

What is less good is that as we鈥檝e seen, Eats turns growing gross bookings into sharply negative (and worsening) adjusted EBITDA. Why does Uber invest in Eats, if the business is so unprofitable? Growth.

Uber has long been valued on growth. Sans Eats, Uber鈥檚 growth rate is slow and its GAAP losses sticky. You can鈥檛 grow 20 percent year-over-year, give or take, and lose $1.16 billion in a quarter (30 percent of GAAP revenue). It鈥檚 too much. So, Uber needs a growth business, and thus Eats is a priority. And, therefore, the company鈥檚 adjusted EBITDA will remain negative for years to come as Uber endures longer losses to allow for greater revenue growth.

Dilution

It鈥檚 easy to forget how rich the two companies are in the shadow of their losses. Uber reported 鈥淸u]nrestricted cash and cash equivalents were $12.7 billion鈥� at the end of Q3. Lyft鈥檚 tally is over the $3 billion mark at the same point in time.

The firms can therefore self-fund for ages; there鈥檚 little risk of either company running out of cash. To make that clearer, let鈥檚 examine the companies鈥� Q3 operating cash flow. Uber had $878 million in negative Q3 operating cash flow, giving it years of room to run, for example.

The question then becomes why Lyft and Uber are trading down now, just as the two companies are promising future profits and pushing their forecasts up. Two reasons, I think. First, it鈥檚 clear that the companies鈥� GAAP losses ($463.5 million in Q3 from Lyft, $1.16 billion in Q3 for Uber) are going to continue for the foreseeable future; neither company has made a commitment to staunching its GAAP red ink.聽

Continuing, a big piece of each GAAP net loss figure is share-based compensation, telling public market investors that every quarter when Lyft and Uber report adjusted profit, they are looking past a lot of dilution to get to the better-seeming figure.聽

Secondly, because it鈥檚 a little clearer than before that Uber and Lyft鈥檚 long-term estimates of 20 to 25 percent adjusted EBITDA margins are probably just about right. That means that the company鈥檚 future multiples will only be so high.

Today, according to , data, Lyft鈥檚 trailing revenue multiple before trading began was 2.9, while Uber鈥檚 came in at 3.7. Those ratios probably don鈥檛 have much space to climb over time; investors looking for a bet with a higher chance at multiples expansion would therefore covet companies with higher gross, and profit-margins.

Throw in slowing revenue growth as the two firms continue to scale and you find a mix that isn鈥檛 as exciting as the firms were when they were fast-growing upstarts.聽

One last thought. We鈥檙e seeing Lyft tout its product focus and slimmer losses as advantages. And Uber is putting its money into other businesses and a global presence. We don鈥檛 know which method will prove more long-term lucrative, but we鈥檙e seeing two divergent bets on the ride-hailing market harden around their differences. It鈥檚 going to be a very exciting few years.

滨濒濒耻蝉迟谤补迟颈辞苍:听

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Yesterday as part of its third-quarter earnings report, GrubHub’s described how the online food delivery giant views its market. And its competition.

The letter provides interesting context for the on-demand players, especially those working with food delivery. It’s a space that has attracted oceans of capital (DoorDash, , etc.) and investment from other sorts of on-demand companies, like . The scale of the bets placed in the space by venture investors, , and companies that venture capitalists previously funded is huge. It’s in the tens of billions by now.

And so, when GrubHub warns that growth in its market could be set to slow dramatically, it’s worth paying attention to. Let’s explore.

Warnings

GrubHub is being challenged by private companies who can lose lots of money in the short-term as they have raised ample capital from investors more interested in growth than profits. GrubHub, in contrast, is profitable and has to report its earnings each quarter.

The public company has noticed the entrant of high-growth on-demand companies, as we’d expect. That said, how it describes the entrance of, we presume, DoorDash is interesting (Bolding: SA国际传媒 News):

Over the last few years, two significant changes on the restaurant supply side temporarily accelerated overall industry growth. First, a new entrant leveraging a national, scaled third-party transportation network brought delivery capabilities to tens of thousands of independently owned and enterprise restaurants that couldn鈥檛 or didn鈥檛 choose to provide their own delivery services. Second, listing restaurants on platforms without any partnership allowed other players to expand restaurant inventory rapidly. Both of these changes opened up new and unique pockets of restaurant supply and resulted in significant growth in both orders and new diners as previously untapped geographies and additional restaurants in all geographies were now immediately accessible online.

Regarding its own new user growth, GrubHub said that “retention of these newer diners was good” but that their “ordering frequency” wasn’t developing over time to be as strong as seen in “earlier cohorts.” The company then got into the weeds, explaining how it saw the market changing in the wake of the new competition and a changed competitive landscape (Bolding: SA国际传媒 News):

We spent a fair amount of time digging into the causes of these dynamics. What we concluded is that the supply innovations in online takeout have been played out and annual growth is slowing and returning to a more normal longer-term state which we believe will settle in the low double digits, except that there are multiple players all competing for the same new diners and order growth.

GrubHub next described why some diners weren’t performing as expected. The company wrote that ” online diners are becoming more promiscuous,” using a number of platforms for delivery instead of just one, for example. “Easy wins in the market are disappearing a little more quickly than we thought,” GrubHub continued.

The warnings didn’t stop there, however. GrubHub also took shots at companies looking to find efficiency in delivery scale, writing that (Bolding: SA国际传媒 News):

A common fallacy in this business is that an avalanche of volume, food or otherwise, will drive logistics costs down materially. Bottom line is that you need to pay someone enough money to drive to the restaurant, pick up food and drive it to a diner. That takes time and drivers need to be appropriately paid for their time or they will find another opportunity. At some point, delivery drones and robots may reduce the cost of fulfillment, but it will be a long time before the capital costs and ongoing operating expenses are less than the cost of paying someone for 30-45 minutes of their time. Delivery/logistics is valuable to us because it increases potential restaurant inventory and order volume, not because it improves per order economics.

Firey stuff, frankly.

Now, GrubHub has a biased view of the market, its place in it, and the dynamics of the space in which it competes. That much is clear. But the company is also trying to explain its worldview to its shareholders, so we’re not just reading some useless hype; this is how the company describes itself to its owners.

Let’s bring this back to startups.

Growth

DoorDash and other prime GrubHub competitors are valued on revenue growth instead of profit. This means that they don’t have to make money in the short-term, but also means that if their growth rate slows, their value can quickly fall. If overall market growth slows, it could crimp DoorDash’s ability to continue the sort of growth that its backers covet.

The news doesn’t really get better from there. GrubHub’s notes concerning easy wins becoming scarce on the ground implies rising customer acquisition costs (CAC); harder wins cost more. This abuts the fact that diners’ budgets aren’t infinite. GrubHub noted in its letter that “the average diner in the United States will not consistently pay over $25 in total cost for a quick service restaurant cheeseburger meal.” So, rising CAC could cut into margins if order size can’t scale further. (SaaS fans can think of the situation as something akin to falling LTV compared to CAC.)

Summing, we could see what makes some on-demand companies attractive become less attractive over time. GrubHub is right in that most customers won’t use the service if they repeatedly have to pay high costs for a regular-quality meal. Also, none of this takes into account a possibly failing macro-climate. Add that in and things become worrisome.

Investors agree. Shares of GrubHub were off 37 percent this morning.

滨濒濒耻蝉迟谤补迟颈辞苍:听.

We’ve covered the dizzying rise of from food delivery unicorn to Vision Fund-backed, niche-defining decacorn.

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All it took was a bathtub of capital. The company’s market share has risen among key groups thanks to its epic fundraising activity. Its consumer market share in the United States has risen to a leading position, . And its recent acquisition of Caviar from will as well.

But it seems that even the company’s sights are a bit higher than merely using humans to deliver an ever-larger amount of food. Instead, DoorDash is snapping up self-driving talent. To what end, and at what cost, is a good question.

Robots, Not Cars

It doesn’t seem that DoorDash is in any danger of building self-driving car tech. What the firm is working on are self-driving robots that can scoot about cities, delivering food at a far lower cost (in theory) than what it costs to pay humans to do the same.

It’s not new work at DoorDash. You can find company notes August 2017 entry, extolling a new robot delivery vehicle that it was excited to announce. The post also noted that the firm had already started “testing robot deliveries on the DoorDash platform.”

Fast forward to this week, and the company appears to be very much still at it. Here’s :

DoorDash has been on an acquisition tear of late, with Scotty Labs as its latest target. […] [The company] is working on technology to enable people to remotely control self-driving cars, raised a $6 million seed round.”

TechCrunch also notes that DoorDash scooped up “the two co-founders from Lvl5,” a firm that works in mapping for self-driving tech. (Data on , and .)

Add the two deals to DoorDash’s history of work in robotics and it’s pretty simple to see that the company is still investing in building delivery robots. Of course, competitors like are working on the same thing.

Indeed, there appears to be a sort of two-prong battle in the world of autonomous wheels. The first deals with self-driving vehicles that can carry several things; cars, trucks, and other wheeled machines that can bring multiple people, or multiple tons of product to where they need to go. And the smaller end of the race, where box-sized robots want to bring small amounts of product to consumers’ places of work and rest.

It’s hard to fault delivery companies for working on their own tech. My read is that every single on-demand company wants to get rid of paying delivery humans as quickly, and completely as possible. This was evident even back when ride-hailing companies first decided to not pay their driving staff like staff. Since then, self-driving machines have been worked on by nearly everyone you can name in the ride-hailing market. Postmates and DoorDash, in the on-demand niche, are similar.

Postmates has filed privately to go public听补苍诲 could reveal a public S-1 this year. If it does, we’ll be curious to see what sort of impact its robot delivery machines make on its R&D spend. Because we know that self-driving tech is expensive.

Ride-Hailing, Self-Driving

Ride-hailing generates no cash, let alone net income. I cannot name a single ride-hailing company of scale that makes money anywhere in the world. The model requires lots of capital until a later date when prices can rise to help companies cover costs. Or until self-driving tech can reduce costs in other ways, allowing delivery platforms to collect more money per delivery for themselves.

Now, read that paragraph again but swap in on-demand deliveries for ride-hailing, and you get a nearly-true set of statements. GrubHub makes money, so the edits don’t hold up, but you can see the point.

On-demand companies feel like they are suffering from a similar problem as ride-hailing companies. To generate lots of demand (revenue, and revenue growth), they need to charge a price point that doesn’t allow them to fully cover their costs. Self-driving tech could help either category, so everyone is investing in the stuff. (More on the issue here.)

But at what cost? We’ve noted that ride-hailing is a bit like fracking in the past, with lots of capital going in but very little coming out in the way of cash or profit. Autonomous work is similar. Indeed, the cost of self-driving tech is staggering. Billions and billions of dollars are being poured into the space, with little so far to show for it in the way of commercial performance.

So can DoorDash get robot deliveries right before Postmates does, or someone else? Or can it get the work done and scaled before its model runs out of fresh cash? We’ll see, but the company certainly is still hard at it.

滨濒濒耻蝉迟谤补迟颈辞苍:听

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Rewind the tape a few years and on-demand startups were nowhere. As the market learned how expensive it was to build a delivery startup at scale, capital became scarce.

Back in 2016 being an on-demand startup . , and missed its target of becoming a unicorn . In the same year, on-demand food startup shut down amidst the “on-demand apocalypse.”

But that was all聽迟丑别苍,听mind. Now is聽now, and today on-demand is hot. Not on-demand ride-hailing, just on-demand delivery. If you do that, times are pretty good. Unless you are Uber doing on-demand deliveries, then you are still not hot. Got it?

Good. News out recently brings us to this topic as DoorDash looks to add another chunk of capital to its cap table. At a new, higher valuation to boot.

The Round

DoorDash is raising “at least $500 million” at a valuation of “about $13 billion” . The that DoorDash is looking for “between $650 million and $750 million” at a post-money valuation that “would approach $13 billion.” And finally, the news that DoorDash was looking to raise new capital at a valuation north of $10 billion.

That’s a lot of news about a single round. But when there’s that much smoke, there’s nearly always fire of some sort. So it’s more than likely that DoorDash is working to close a monster new round, at a monster new valuation.

Which is odd, really. It’s not odd that DoorDash聽can raise more money. Deliveroo just did, Postmates is , and the market for food delivery is large. But it’s odd that DoorDash聽is raising more money.

After all, the company has been doing little else lately:

That’s rapid valuation growth by literally any standard. Indeed, the are betting that it is creating prodigious value at the moment, or they are betting that with their capital injections the firm is set to consume quite a lot of the delivery market.

DoorDash, , is . That must cost a lot of money. But otherwise, the firm may be raising to power new markets, fund current operations, and perhaps shore up its balance sheet in case of a macro downturn. I also wonder if this is just another round that DoorDash is raising because it can.

Slack did that for a while, and it worked out pretty ok.

Regardless, what’s clear is that the 2016 on-demand market is behind us. In 2019 what was anathema before is hot once again. Just wait for three years from now. Maybe things will have reversed yet again.

Illustration: .