Take-away food sits on a table at a launch event for the UberEats delivery service, operated by Uber Japan Co., in Tokyo, Japan. (Photographer: Akio Kon/Bloomberg)

Delivery Businesses Had A Good 2018. What's Next?

(Bloomberg) -- A lot can change in a year. In January, Uber Technologies Inc. was still in the hot seat for its years of scandal and infamy. It took money from SoftBank Group Corp. at a blended $54 billion valuation, an embarrassing markdown for the ride-hailing titan. A few months later, on-demand darling Munchery laid off 30 percent of its staff, and packaging service Shyp shut its doors for good. This followed the demise of a litany of other food-delivery upstarts like Maple, Sprig and SpoonRocket.

All told, it wasn’t looking good for on-demand startups, widely assumed to be overhyped and overleveraged. But as the year wore on, investors started to see the light.

In March, DoorDash Inc. raised $535 million from SoftBank. It was a humongous sum of cash, though the food-delivery company’s valuation remained basically flat. But by August, Coatue invested $250 million in the startup, and its valuation nearly tripled.

This summer, Lyft, too, saw its valuation soar to $15.1 billion. And in October, Instacart raised $600 million at a $7.6 billion valuation.

Now, even Uber is a hot company again, with much of the tech world consumed by its path to IPO. Together, Uber and Lyft are newly resplendent as beacons of an attractive industry.

After so many wins, it feels like the big existential questions for on-demand companies have been put to rest. The independent contractor issue largely stayed out of the headlines this year. Uber won its regulatory battle in London, and its defeat in New York didn’t seem too debilitating. Even Germany, Japan and Argentina are starting to open up to the company.

Closing out 2018, this batch of startups has a winning narrative. They’re ready to be grown-up businesses. But we'll see how that story holds up in 2019.

There are still several unanswered questions for the industry. First, the world economy stands on a precipice. Uber and Lyft are aiming to go public just as markets are stumbling. Thursday after the close, the NASDAQ was down nearly 20 percent from its recent peak. This has been a great year for IPOs, but is the window closing?

Second, can these companies make money, and how soon? For both Uber and DoorDash, SoftBank cash helped fund big losses in 2018. And while there’s nothing like a couple hundred million dollars to put a business back on solid footing, ultimately both will have to figure out how to make a profit if they want to be sustainable public companies.

And there are other lingering problems that didn’t go away this year, even if they didn't flare up. Regulators, lawmakers and the courts move slowly. Uber has tried to settle as many lawsuits as it can before it goes public next year, but it hasn’t put the independent contractor issue to rest. United Kingdom courts recently ruled against Uber, finding that drivers are employees. And this spring, the California Supreme Court handed down a much more stringent test for calling someone an independent contractor.

The on-demand economy had a far better 2018 than I would have predicted in January. But despite covering these companies in-and-out every day, I wouldn't want to guess what next year will deliver.

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