Uber Targets Key Emerging Markets With Massive Funds

  • Ride-on-demand app operator, Uber, secured another $1 billion funding under a $51 billion valuation.
  • Uber requires enormous amounts of money to handle both global expansion and legal actions.
  • Strategic investments in China and India are expected to assist Uber to increase its market share there.
  • The company reportedly plans 2017 IPO, but might be forced to go public earlier than that as it grows bigger.
Uber IPO could be held sooner than later

Ride-hailing app operator, Uber, became the largest venture-capital-backed company after it raised more than $1 billion from Microsoft, and Indian giants Tata Capital and Bennett Coleman & Co., in the latest series F round, valuing the company at more than $50 billion. The current round took place only seven months after Uber’s previous round, when it raised a massive amount of $2.8 billion at a $41 billion valuation, reflecting a 24% surge in Uber’s valuation in just seven months.

Note: You might be interested in our earlier coverage of a potential Uber IPO.

The San Francisco-based ride-on-demand startup is trying to expand globally even while it struggles with many difficulties on the way. These include problems in getting legal permits to operate in certain countries, competition from local ride-on-demand services, and pressure from local taxi organizations. At the same time, Uber faces a labor lawsuit over drivers’ rights in its home state of California. To fight back on all fronts and be able to grow Uber, massive amounts of money are needed, and this it partially receives from its frequent and huge funding rounds.

As shown in Chart 1 below, Uber raised more than $5.5B since 2010, when it raised more than $1B in three different rounds. Uber’s real boost in valuation happened after series C, when the company’s valuation surged 14.5X from $3.5B in series C to $51B in series F.

Uber_chart 2_090315

Uber succeeded in raising these impressive amounts of funding thanks to its leadership position in the U.S., as well as its broad global presence, revenue growth, and future growth potential. Comparing Uber’s global spread to its rivals’ reveals that Uber, without a doubt, has the widest global spread; it operates in 60 countries worldwide, and its biggest competitors, globally, are the Israeli Gett, which operates in U.S, Britain, Russia, and Israel, and the Singaporean GrabTaxi, which operates in six Southeast Asian countries.

Even though Uber is well positioned around the world, it still struggles in two key markets: China and India. In the Chinese market, Uber faces fierce competition against the local ride-on-demand service Didi Kuaidi (the company also invested in GrabTaxi). In fact, it got into a subsidies war with Didi Kuaidi, allowing passengers to ride almost for free. In order to compete better in China, Uber founded an Uber China subsidiary that recently raised $1B from prominent Chinese investors like Internet giant Baidu (NASDAQ:BIDU), China CITIC Bank, and China Life Insurance Company among others, only one month after Didi Kuaidi raised $2B from Alibaba (NYSE:BABA) and Tencent (OTC:TCEHY) among others. As mentioned in an earlier article, Uber is rumored to list its Chinese subsidiary in the local stock exchange that seems very unlikely with the current economic status in China.

In India, Uber struggles to compete with local startups like Ola, Meru and TaxiForSure, and is engaged in a strategic investment move by one of country’s largest private equity funds, Tata Opportunities Fund (TOF), just one month after the investment by Bennett Coleman & Co. Backed by TOF, Uber is positioned not only to fight back with the local services but to lead the market as it did in other places. As Uber considers China and India as core growth areas, it also tries to expand in Southeast Asia and compete with GrabTaxi over there.

While struggling to grow in the major emerging markets of Asia, Uber increases its revenues rapidly from its current operations as Reuters revealed from a recent document leaked to it. As presented in chart 2 below, Uber expects to generate more than $2B revenue in 2015 and will more than double that amount in 2016. A comparison of Uber’s estimated revenue in 2016 to its actual revenue in 2013 shows an astonishing 38x increase in these four years.

Uber_chart 1_090315

In the same document, Uber mentioned considering an IPO in 2017, which means that the company will hold an additional funding round that can potentially increase its current valuation further. As its current valuation is already $51B, going public in two years at a bigger valuation can bring Uber close to Facebook’s (NASDAQ:FB) $100B valuation at its IPO in 2012.

The high potential investors see in Uber’s growth in India, China, and Southeast Asia as well as proven revenue generation from its current market makes Uber a very attractive investment for large investment firms and technology companies. However, as happened in Facebook’s case, Uber might get too big with too many investors and it will have no other alternative than going public sooner than planned.

Disclosure: The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.

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