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“Funds have been betting big on food delivery. But there are growing signs of weakness weakness latest with uber today with uber eats and grubhub and they both take in heads ellen. What s the big challenge for these companies well. I think as presented in grub hubs earnings last week.
The concern is that food delivery will never really make that much money and this is something that grubhub even told its investors that the logistics part of the business as opposed to advertising or other ways that these companies can get revenue. That logistics part may never really be a high profit business and i think that spells some pretty troubled times ahead for some of these late stage private companies. Such as post mates and doordash that are hoping to maybe go public. But but haven t really pulled the trigger.
Yet can you give us a sense ellen of how popular these food delivery services. Have been with private equity and venture funds. Hugely popular this is a place where even south bank. Has placed a bet on door and the hundreds of millions of dollars.
They re really hoping that based on the market size and and the habits that some people have around making these purchases..
All the time that this is a really big market they want to be a part of i think the issue that they re coming up against is these have always been framed as growth companies that are trying to get market share trying to win. It s unclear if they ll ever really be able to turn a profit and that s becoming more important. Now as as the the public markets look to these growth companies and venture and and and are assessing whether they re a good investment or not ellen thank you so much for taking the time and to all of our reporters it brings us to our next guest. Bloomberg opinion.
Columnist connor. Son also a portfolio manager and i m wondering connor from your perspective. There are so many issues that get raised by some of these food delivery services and the troubles that they ve been having the one is the economic fallout and you raised this recently with particularly with restaurants can you explain sure so restaurants have been challenged by labor costs and and just you know the restaurants are always a low margin business and so they look to delivery as a way to juice growth. And so you know because door and post mates and these companies have tried to gain market share and haven t been focused on profits.
It s sort of been a symbiotic relationship between restaurants and delivery. But now if you have to see delivery companies cut back to to get to profitability. It raises a question of what that s going to do to restaurant revenues downstream. The other issue that i ve seen raised is who invests in some of these mill delivery services.
And we ve seen that even mutual funds have been getting in before they go public to some of the private shares how much of a concern is that i guess it depends on how much they ve invested because obviously you look at the share price of grubhub after its earnings myths or birt day and the public markets is valuing this business a lot less than it was say six months ago and yet earlier this year..
Private markets valued or and post mates had a combined valuation of around fifteen billion dollars. And so if you have those on your books. The question is where should you mark them. And what kind of hit should be write down should you take well.
I mean. I guess that the concern that some people have raised is that the fidelity is of the world and even the vanguards. Although less vanguards. More fidelity have gotten into private shares right ahead of ipos and that they don t have to really value these shares on some sort of standard metrics.
So they might end up being able to have more flexibility in valuing these at much higher levels than the reality. I m just wondering do you view this as a systemic risk or is this more of an idiosyncratic issue. I would guess idiosyncratic for now just because the there doesn t seem to be a whole lot of widespread damage. I mean it s sort of there been a lot of headlines this year but in terms of dollars.
I don t think it s significant relative to a 20 trillion dollar us equity market..
But it s certainly. A behavior that we have to look for going forward to see if if they can if you if they pull back or keep going when you wrote about the gig economy. When we talk about uber eats or even uber or door a lot of it hinges on the gig economy. You recently wrote that it s a dead end.
Why did you say that well. I think you you know obviously grubhub as ellen mentioned has said that delivery will probably never be significantly profitable and also given the labor market. We see with unemployment at three and 1 2. Percent wage growth rising and the fastest for workers sort of the lower end of the labor market.
Thank america just actually raised their minimum wage to 20 an hour and then you have legislation in places like california about how to classify these workers. It s just not clear. Where you re gonna get the workers to work to run this business at a profitable level so when you talk about some of the companies that are seeing their valuations decline and i know that you said that you view this as more of an idiosyncratic issue. When does it become systemic.
How much money has been funneled in i guess the question is first what the public markets decide these companies are worth and then secondly just in terms of how many dollars were invested at these companies at what prices and then what can those mutual funds get for these companies at some you know whether it s in private markets or public markets down the road going forward do you think that private markets increasingly hold less value than even public equities at this point given some of the pitfalls that we ve seen. I think. Private markets have the attraction of not having that mark to market volatility. But it doesn t mean the risk has gone away and so sort of for this decade.
They ve had it both ways where they ve had the momentum and growth of these of these stocks. Without the the volatility you see in public markets. And i just think we re sort of seeing a reckoning. There where you know ultimately stocks do go up and down in ” .
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