- Baidu led a new $1.2 billion investment round in Uber.
- Uber plans to expand its operations in China, relying on Baidu's technical and political means.
- The investment in Uber is part of Baidu's very profitable online-to-offline (O2O) business model.
- Uber is considering an IPO within 18 to 24 months.
- Both Baidu investors and future Uber investors are likely to profit from the partnership.
Ride sharing giant Uber has raised $1.2 billion in new funding to invest in its business in China, Fortune reports. The round, led by Chinese Internet giant Baidu (NASDAQ:BIDU), which had already invested in Uber, values Uber’s China subsidiary at $8 billion. The new direct investment of Baidu hasn't been discosed, but Baidu could now now be a 5 percent equity holder in Uber. Uber itself was valued at $50 billion in its last round of funding.
Uber, which currently operates in 20 Chinese cities, plans to expand its operations in China to other 100 cities, Uber CEO Travis Kalanick said on Tuesday at an event in Beijing hosted by Baidu, Reuters reports.
"Progress is something we see the government [of China] be incredibly open to, whether it be about more jobs and less pollution, less congestion on the streets, better utilization of infrastructure, that kind of progress always has to be in harmony with stability and that is one of the big things that we partnered with the government on," said Kalanick.
The Baidu connection is very important to Uber, and instrumental to getting things done in China. "We can get introductions to the city governments, the government officials that want to shepherd our kind of innovation and our kind of progress into their cities," said Kalanick, and added that Uber will welcome the new regulations expected later this year governing ride-hailing services in China.
Restrictive regulations, hastily issued by governments to appease the angered taxi drivers threatened by the disruptive impact that Uber is having on urban transport in Western cities, are among the main obstacles that Uber has to face. But Chinese regulators are likely to be more open, and therefore Uber is betting big on the Chinese market.
"Forget the US. China Is Uber’s Biggest Prize," reads the title of a Wired article. With about 750 million potential riders, according to some estimates - roughly twice the total population of the US - the country represents the world’s biggest market for ride-sharing. But other companies, such as Uber's main competitor in China Didi Kuaidi, are after the same market, and therefore Baidu's support is critical for Uber.
Baidu is betting on O2O (Online-to-offline), a fast-growing and very profitable market, where transactions are initiated online and completed offline. The O2O market is boosted by the strong penetration of mobile Internet access in China - mobile accounts for over 50% of Baidu’s total revenue - and Baidu has indicated that it will spend $3.2 billion on O2O initiatives during the next three years. The investment in Uber, which has the leading O2O business model, is representative of Baidu's focus on O2O.
The Baidu-assisted expansion of Uber in China is interesting for two types of investors: Baidu investors, and those who are impatiently waiting for Uber's IPO.
Uber's operations in China strongly rely on Baidu's services and infrastructure. For example the integration of the Uber app with Baidu Maps, which recently hit 300 million users, and Baidu mobile search, could bring more customers to Uber and more traffic-related income to Baidu.
Considerations similar to those recently mentioned on Amigobulls commenting on Microsoft's investment in Uber apply here as well: the impressive tide of Uber's "humans as a service" business models is likely to lift all partner boats.
In a recent presentation to Chinese investors, Uber detailed its explosive growth in the six years after it started operations, and indicated that Uber is considering an IPO within 18 to 24 months, Reuters reported. When Uber goes public, Baidu will be able to recover part of its initial investment while retaining a strategic stake in Uber and a technological partnership.
Uber's IPO is also very interesting for individual investors. The company, a leader in social innovation, made social car sharing a reality by enabling freelance drivers to offer their services to people in need of transportation, a win-win deal.
According to rumors reported by Forbes and other financial magazines, Uber wants to launch a fleet of self-driving autonomous cars. The rumors are supported by the strategic partnership with Carnegie Mellon University (CMU) to jointly develop technologies for self-driving cars at the Uber Advanced Technologies Center in Pittsburgh, near the CMU campus. It's worth noting that Uber self-driving cars on-demand could, in a few years, reduce the need for privately owned cars, which would have a disruptive impact on city life - and make Uber investors rich.
Similarly, Baidu's new investment in Uber seems a smart move typical of Chinese pragmatic mentality – Baidu is focusing on the money, and the value of Baidu's stock is likely to grow in the long term.