The COVID-19 pandemic has forced ride-hailing company Uber Technologies Inc. (NYSE: UBER) to cut costs by firing thousands of employees and to search for other sources of revenue to replace that lost by stay-at-home orders in most major U.S. cities. The company also faces some legal challenges that will remain a weight on the share price until they are resolved.

Uber CEO Dara Khosrowshahi said on a conference call Tuesday, as part of the Bank of America Securities Global Technology Conference, that the company’s food delivery business, Uber Eats, is more than doubling this year and that Uber will push for consolidation in the food delivery business. He did not comment on the much-discussed merger between Uber and Grubhub Inc. (NYSE: GRUB).

The company’s problem, however, is that food delivery revenues are only a third the size of rider revenues. In the first quarter, Uber Eats revenues increased by 53% to $820 million, while ride revenues totaled $2.47 billion. There also is a lot of speculation about how well the food delivery service will perform once the pandemic has passed.

Uber’s Business Is Recovering a Little

Uber reported that its global rides business was down 80% in April. Rides improved somewhat in May to down 70% year over year. Hong Kong, perhaps ironically, has recovered some 80% of its Uber riders since posting a pandemic-caused low earlier this year.

For every Hong Kong, though, rides are still struggling in many other cities. The demonstrations following the killing of George Floyd in Minneapolis led to curfews affecting some 60 million Americans in more than 200 U.S. cities, including New York City, San Francisco and Washington, D.C.

Uber and competitor Lyft Inc. (NASDAQ: LYFT) mounted an effort to have their businesses, especially the food delivery business, considered “essential services” so that they could remain open. Uber discontinued delivery services during curfew hours in Minneapolis, Oakland, San Francisco and Los Angeles on Monday.

In some other cities, however, the ride and delivery services have remained open at the request of city officials who were concerned that other essential workers would be unable to get to work or get food to eat.

If curfews are lifted soon in the cities hit by violent demonstrations, the easing of the lockdowns in some of those same cities could get Uber, Lyft and similar services back on track.

Has the Long-Term Outlook for Uber Changed?

Uber stock traded Thursday right around the consensus price target of $36.66 a share. Analysts at firm Wedbush and megabank JPMorgan have put a Buy rating on the stock and a 12-month price target of $38. Both carry substantial weight with investors.

For the year to date, the stock has added nearly 24%, although it is still down more than 10% from its 2020 high. Uber reported a loss of $2.9 billion in the first quarter, after losing $1.0 billion in the same period a year ago. The consensus estimate calls for a net loss of around $1.5 billion in the second quarter, but that almost certainly is optimistic. The most pessimistic estimate suggests a second-quarter loss of more than $3 billion.

Even if Uber’s food delivery service doubles revenues to $1.6 billion in the second quarter, the losses from the rides business could cancel out the increase. With both rides and delivery services observing curfew restrictions in some of the country’s largest cities, it isn’t easy to see how Uber loses half as much in the second quarter as it did in the first.

The Grubhub Deal

Talk about a tie-up between Uber and Grubhub has diminished. While a merger may be in Uber’s best long-term interest, in the short run it’s hard to see any benefit. Grubhub stock trades up around 21% for the year to date, a slightly lower gain than Uber’s 24%. Shares of Grubhub currently trade at around $58 a share, more than $20 higher than Uber shares.

An all-stock transaction likely would overvalue Grubhub and cause current Uber shareholders to file plenty of lawsuits. Short sellers held about 3.3% of Uber’s float as of May 15, and that number could be higher when the May 30 report is released.

A higher hurdle for a merger may be a political one. Four U.S. Senators have expressed concern that an acquisition of Grubhub would create a single company that controls 51% of the U.S. food delivery business. “A merger of Uber Eats and Grubhub would combine two of the three largest food delivery application providers and raise serious competition issues in many markets around the country,” said a letter that was signed by Amy Klobuchar (D-Minn.), Patrick Leahy (D-Vt.), Richard Blumenthal (D-Conn.) and Cory Booker (D-N.J.).

Perhaps worse, the combined company, along with DoorDash, would control 90% of the delivery business. The senators believe that this would result in elevated prices and a lower quality of service due to the lack of competition.

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