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2016 IPO Prospects: Uber Eyeing Self-Driving

Posted on Thursday, Aug 25th 2016

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According to eMarketer, 15 million US adults are expected to use ride-sharing services, a 20.5% y-o-y increase. However, the sector is maturing with no more booming growth rates. While the segment is expected to grow through 2020, the rate of growth is expected to shrink to single digits by 2018.

Uber’s Financials

Founded in 2009 by CEO Travis Kalanick and Garrett Camp in San Francisco, the poster child of ride-sharing Uber has now grown to over 500 cities in 76 countries. It earns revenues in the form of transaction fees for every ride booked through its app. Uber earns its revenues through the transaction fee that it charges on every booking. Analysts estimate that it charges a 20% fee on the fare.

Uber does not disclose its financials. However, according to a leaked report published early this year, Uber’s net revenue in 2014 was $495.3 million and $663.2 million in first half of 2015. Its sales and marketing expenses was its largest expense category at $246 million in 2014 and $295 million in the first half of 2015. From the first to the second quarter of 2015, gross bookings increased from $1.5 billion to $2.13 billion. It paid out $2.72 billion to driver contractors in the first half of 2015, just under 75% of bookings.

GAAP losses amounted to $671 million in 2014 and expanded to $987.2 million in the first half of 2015. Cash and cash equivalents increased from $1.96 billion at the end of 2014 to $4.15 billion in mid-2015.

Uber’s Acquisitions

Uber this month announced its plans to acquire Otto, which developed a kit that lets big-rig trucks drive themselves on highways. Otto was founded by four former Google executives, including Anthony Levandowski, one of the original engineers on Google’s self-driving team and Lior Ron, who headed Google Maps for five years. The deal is estimated to be worth $680 million.

Uber has been investing heavily in self-driving tech. It has signed a deal with Volvo to spend $300 million to get a self-driving car on the road by 2021, but will begin an early pilot later this month. The pilot will use modified Volvo XC90 sport-utility vehicles equipped with sensors that use cameras, lasers, radar, and GPS receivers. A specially trained driver and co-pilot will also ride along in the self-driving cars and the rides will be free at this stage. Uber faces several regulatory issues regarding drivers’ background checks and payments. Self-driving cars could be a way out for such issues, but the technology has a long way to go before it is proved to be safe and is regularized. And it also raises the question, Just because we can, does it mean we should?

Uber Exits From China

Uber recently agreed to sell Uber China to Didi Chuxing. The deal is yet to be approved by the government. As part of the arrangement, Didi will invest $1 billion in Uber’s global company Uber Technologies and Uber China’s other shareholders, including search giant Baidu Inc., will receive a 20% economic stake in the combined company. Uber China has already lost $2 billion in two years and this move is seen to be favorable for an IPO.

Uber Still Has to Worry About Lyft

Lyft is the major competitor to Uber. It operates in over 150 cities in the country and has a fleet of more than 100,000 drivers. Analysts estimate that Lyft recorded $130 million in revenues in 2014 and had grown to $46.7 million in revenues in the first half of 2015. The price war with Uber has taken a toll and it continues to suffer losses. For the first half of 2015, losses amounted to $127 million.

Lyft is also venturing into self-driving. It has teamed up with General Motors to develop self-driving cars and plans to roll out a pilot at GM’s campus in Michigan by the end of the year.

Lyft is also venture funded and has raised $2 billion from investors including Icahn Enterprises, Rakuten, Coatue Management, Andreessen Horowitz, Founders Fund, Mayfield Fund, FLOODGATE, K9 Ventures, and fbFund. Its last round of funding was held in December 2015 when it raised $1 billion in a round led by General Motors at a valuation of $4.5 billion. It is a modest number when compared with Uber’s valuation, but it too has grown significantly from the $700 million valuation in April 2014.

Lyft is reportedly seeking a buyer, which is a reflection of the growing pressures in the industry. It is reported to have held talks with or approached companies including General Motors, Apple, Google, Amazon, Uber, and Didi Chuxing. Lyft was part of a global alliance with Didi to fight Uber. With the new Didi0-Uber deal, this alliance is in jeopardy and so is Lyft’s growth prospects.

Uber’s Funding and IPO Plans

Uber remains venture funded so far with $11.5 billion in funding received from investors including Saudi Arabia’s Public Investment Fund, Morgan Stanley, AITV, Baidu, Benchmark, Bennett Coleman and Co, BlackRock, CrunchFund, Cyan Banister, Data Collective, Fidelity Investments, First Round, Foundation Capital, Founder Collective, Garrett Camp, Goldman Sachs, GV, HDS Capital, Innovation Endeavors, Jeff Bezos, Kleiner Perkins, Lone Pine Capital, Lowercase Capital, Menlo Ventures, Microsoft, New Enterprise Associates, Sherpa Capital, Summit Partners, Techstars Ventures, TPG Growth, Tusk Ventures, Valiant Capital Partners, and Wellington Management. Its last round of funding was held in June 2016 from Saudi Arabian public investment fund, maintaining its valuation of $62.5 billion.

The flat valuation reflects the slowing momentum in the industry. Against such a backdrop, would an IPO be advisable? CEO Kalanick wants to delay the IPO as long as possible while there is bound to be pressure from investors to go public sooner.

Photo Credit: 5chw4r7z/Flickr.com

This segment is a part in the series : 2016 IPO Prospects


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