What's going on?
Uber announced that it was pumping the brakes in Southeast Asia. It’s selling its existing ride-hailing and food delivery business there (tweet this) to local rival Grab in exchange for a nearly 30% stake in the expanded company.
What does this mean?
Over the last year or two, Uber has been steering away from its desire for global dominance of the ride-hailing market, selling its unprofitable operations in countries like Russia and China to local competitors – and its multinational business in Southeast Asia is next in line to the junkyard.
Considering that Uber has invested only $700 million in Southeast Asia and is getting nearly 30% of a business most recently valued at $6 billion, that’s actually not a shabby financial outcome for Uber!
Why should I care?
For markets: This is part of Uber’s strategy to tighten up its finances.
One important reason why Uber is backing away from some international markets is because it hopes to publicly sell its stock (a.k.a. IPO) in 2019. A somewhat assumed precondition of that IPO is for Uber to veer quite a bit closer to profitability – and that means calling it quits from its loss-making businesses where it might not be able to beat out the competition (which seems to be the case in Southeast Asia).
The bigger picture: Uber’s all-out global offense has not always worked as well as it hoped.
Back when Uber arrived in Southeast Asia in 2013, Grab’s business was reliant on licensed taxis and often required customers to make their payments in cash. Fast forward five years, however, and Grab’s services have come to look a lot more like Uber’s – now offering food delivery and carpooling, for example. It goes to show that Uber’s “barge in” approach to foreign markets might not work if your local competitors have just as deep pockets and can mimic your business!