This week marked an important event for ride-hailing giant Uber, after the San Francisco headquartered company finally managed to sell off its UberEats India business to one of the prominent local rivals. Rumors and speculations were rife since last year that the SoftBank backed ride-hailing company is engaged in an intense negotiation to offload its Indian food delivery business to either Zomato or Swiggy, with the former eventually sealing the deal this week.
Swiggy choose to give UberEats a miss as it reportedly found the latter’s market valuation (touted by the parent company Uber) simply too high. It was only after the collapse of this negotiation that the U.S based ride hailing giant decisively turned towards Zomato for selling off its food delivery arm.
And when Zomato-UberEats much awaited deal was unveiled earlier this week, not many were left surprised by the financial details that were slowly coming out of the deal. Though some would argue that Zomato’s decision to give Uber 10% stake in the company is a huge gamble, a gamble that rival Swiggy thought that it is simply not worth taking it.
Only time will prove whose business acumen was right – Zomato or Swiggy. But there is no denying that this high profile acquisition deal will have a seriously major impact on not only Uber but also India’s foodtech sector.
Techpluto’s take on Uber’s Decision to Offload UberEats India Business
Techpluto strongly believes that Uber’s decision to sell off UberEats business to a prominent local rival is a really smart move. Our raison d’etre and justification is based on two highly convincing arguments. Firstly, this move will propel the ride-hailing major to bring much needed respite to its balance sheet and thereby fulfill CEO Dara Khosrowshahi’s aim to take the company towards profitability route. It was never really a secret that Uber’s Indian food delivery business was proving to be a major drag on its balance sheet.
The pressure on Uber to sell off its loss making businesses on foreign shores was all too palpable, especially after company’s stock was continuously on a downward spiral ever since its listing in May last year. Uber’s stock has nosedived nearly 20-25% since its debut on NYSE. Investor’s pessimism on ride-hailing major’s future prospects came out sharply last week as well, after Goldman Sachs decided to dump its entire stake in the company.
It was clear that Uber desperately needed to streamline its balance sheet in order to restore investor’s confidence and in this context UberEats sell off was critical. Markets too gave a huge thumbs up to UberEats sell off, with Uber’s stock hitting highest intraday since August last year.
Now coming to second argument, which is far more convincing than the first one. Uber managed to sell off one of its loss making businesses with apparently good bargain. After all, the ride-hailing major walked off with 10% stake in Zomato, one of the most respected Indian unicorns and a leader in India’s rapidly growing food delivery business.
Taking a healthy stake in a promising company like Zomato should help Uber in creating long term value for its shareholders and this is suffice to conclude that this selloff deal may bode well for the company’s long term future.