Uber to intensify its battle against Ola in India after exiting its third global market despite pressure from investor SoftBank to focus on more lucrative regions.
Uber will intensify its battle with domestic ride-share leader Ola after exiting its third global market despite pressure from investor SoftBank to focus on more lucrative regions, said company executives familiar with the management’s thinking.
CEO Dara Khosrowshahi didn’t mention India, but indicated as much in a letter to Uber staff after the cab-hailing platform sold its Southeast Asia business to SoftBank-backed rival Grab for a 27.5% stake in the combined entity.
“It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind, from China to Russia and now Southeast Asia. The answer is no,” Khosrowshahi wrote. “This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.”
Khosrowshahi considers India “a core market”, he told ET, adding that Uber would be “investing in India and growing here for a long time”.
When SoftBank, Ola’s largest backer since 2014, recently also became the largest shareholder in Uber, it sparked speculation that the Japanese internet giant would broker a merger of the US company’s Indian operations with Ola.
That now seems unlikely, said Uber India executives, declining to be identified “We are aware that SoftBank prefers that Uber does not focus heavily on India. But we have also heard internally that a merger with Ola is highly unlikely and that senior executives including Dara are bullish about the Indian market, so an exit or a merger is not on the cards for now,” one of them said.
But other people close to Uber feel that doors to a potential consolidation are still not completely closed, and the company is looking for more favourable terms.
When contacted, an Uber spokesperson said the firm is focused on building product and technology to expand its operations while not completely ruling out a deal with Ola.
“We want to grow by being the best choice for our customers around the world, not through transactions. But while M&A is not our top priority, it’s our duty to be open to opportunities,” said a company spokesperson.
Another executive said Uber’s management team does not view Ola as a huge threat and believes the company’s India operations will eventually become profitable.
“Our user base in India is large. We are doing over 1 million rides a day. The executive team believes profitability in India is a serious challenge due to heavily subsidised rates compared to other markets, but not impossible,” this second Uber executive said.
The Uber management’s assertions notwithstanding, control of the company ultimately lies with the big investors, specifically SoftBank, said an analyst, also requesting anonymity.
“The situation is unpredictable at this point. There will now be pressure on Uber’s India operations to show results or signs of profitability by 2019,” this analyst said. “Otherwise, it is likely that SoftBank will apply pressure to exit (India) or for a merger and to operationally cooperate with Ola. While senior executives and Dara have indicated that the India market is important, the decision does not completely lie in their hands.”
While industry estimates peg Ola’s market share at 65-70%, Uber insists it has closed the gap in terms of cab rides. That said, Uber’s aggressive investments in India and Southeast Asia were a primary reason for its global loss increasing 61% to $4.5 billion in 2017.
Ola’s raising the stakes meanwhile, holding talks with Singapore’s sovereign wealth fund Temasek and other investors to raise up to $1billion at a valuation of $6-7 billion. According to multiple executives at Uber India, SoftBank has made it clear that it intends for the company to focus on Europe, Latin America, the US, and Australia, but not Asia.
Uber is preparing for an initial public offering of its shares in 2019, according to the executives.