- The five leading ride-hailing companies raised $6.5B in the last three months.
- Lyft-Didi Kuaidi partnership puts Uber’s China penetration at risk and intensifies competition back home.
- It is highly possible that additional players like Ola, BlaBlaCar, and Gett will join the partnership.
- An early IPO of one of the partnering companies is a game changer.
The ride hailing industry was the focus of attention of the private equity markets, as investors poured enormous amounts of cash into the market. Market leader Uber raised $2.3B in two months from Microsoft (NASDAQ:MSFT), Tata Opportunities Fund and Baidu (NASDAQ:BIDU) to expand its Chinese operation and better compete with the local service Didi Kuaidi. This substantial amount increased the value of Uber to $51B, and the company became the biggest venture-backed startup in the world and the first to cross the $50B valuation in only six years. Uber’s American rival, Lyft, raised $680M from Icahn Enterprises (NASDAQ:IEP), Chinese player Didi Kuaidi, and its biggest shareholders, Alibaba (NYSE:BABA) and Tencent (OTC:TCEHY). This increased its value to $2.5B.
In an earlier article, I presented Uber’s expansion plan, which heavily relies on penetrating the emerging markets of China and India. In China, Uber’s biggest local rival, Didi Kuaidi, raised a phenomenal amount of $3B in the last three months from Alibaba, Tencent and other prominent Chinese investment firms that valued the company at $16B. Didi Kuaidi and its principal shareholders Alibaba and Tencent invested in Uber’s rival back home to increase pressure on Uber worldwide and intensify competition. The relationship between Didi Kuaidi and Lyft was not limited only to Chinese investment in the American ride-hailing service but it also expanded into a strategic alliance in which Lyft users traveling in China will have access to the Didi Kuaidi app, and the Didi Kuaidi clients will have the option to use Lyft's services in the U.S.
According to Reuters: “The companies will take advantage of each other's knowledge of local regulations, especially important in China, which has stymied many tech companies' attempts to enter that market, and share new technology and products”. This partnership is not only increasing Uber’s competition in China but will also stimulate the sluggish competition Uber experienced on its home ground.
In India, Uber’s local competitor, Ola, just raised $225M from Softbank (OTC:SFTBY), Tiger Capital, ABG Capital and others at a valuation of $5B. This funding round comes only one month after Indian giants Tata and Bennett Coleman invested in Uber in an attempt to assist the American ride-hailing firm to penetrate the local Indian market more efficiently by using their broad network, business relations, and extensive knowledge of the local regulations. However, the Indian market is slightly different from other markets due to the low car ownership percentage, requiring ride-hailing services to help potential drivers acquire a car. Ola and Uber have already announced that they will create leasing subsidiaries to fill the need for new cars and increase the number of drivers. Ola and Uber will invest nearly $1B each in this business to stimulate the ride-hailing market in India.
In Europe, Uber’s local rival BlaBlaCar raised $200M at a valuation of $1.6B to expand its operations in Europe, India, and Turkey. BlaBlaCar’s funding round completed the incredible amount of $6.5B that investors have poured into the ride hailing industry in the last three months. The valuation of the top five ride hailing industry players is $76B with all companies still private.
In my opinion, the Lyft-Didi Kuaidi partnership might have a bigger impact on Uber and the market than currently perceived. This partnership aims to take over two of the largest markets backed by big pockets investors. I’m positive that during 2016, Lyft will expand dramatically in the US, and Didi Kuaidi will strengthen its position in China. Moreover, the partnership between them could expand greatly either by adding new members (like Ola in India, BlaBlaCar in Europe, and Gett in Israel and Russia) and creating some kind of a worldwide ride-hailing conglomerate to compete with Uber. There are many advantages of this type of global conglomerate as every company knows its local market best and has a relative advantage there. This conglomerate could block Uber from penetrating many countries and might even grow bigger than Uber in a few years.
As I mentioned in an earlier article, the first company to go public could attract a significant amount of cash from investors who couldn’t invest in the private market and want to participate in this emerging industry. An early IPO of one of the companies in the ride-hailing partnership will shift a significant amount of money towards Uber’s competitors and intensify competition. This is a game changing event, and in light of Uber’s plans to go public in 2017, I’m very optimistic about seeing this event occurring sometime next year.