Dara Khosrowshahi, executive director of Uber Technologies Inc., speaks on a webcast during the company’s initial public offering (IPO) on the floor of the New York Stock Exchange (NYSE) in New York, USA. UU., Friday, May 10, 2019.
Michael Nagle | Bloomberg | fake images
Uber has just cut from another market where it does not dominate.
On Tuesday, the company announced that it sold its Uber Eats food delivery business in India to Zomato, its competitor backed by Ant Financial, an Alibaba affiliate. The agreement of all actions gives Uber a 9.99% stake in the business.
The agreement could leave Uber out of a significant part of the food delivery market. The Asian market has become the largest for online food delivery in the world, with more than $ 45 billion in revenue in 2018, according to an October report by Frost & Sullivan. India has the second highest percentage of that market share at 13.2%, after 73% of China, according to the report.
But Uber’s decision coincides with his established strategy to dominate or get rid. In a November earnings call, CFO Nelson Chai told analysts that Uber “would consider both the provision and use of M&A as potential levers” in markets where they are not yet one of the two main players.
“Our commitment is to support each other if we believe we can win or be one or two,” Chai said. “And if we believe that we cannot, we will be good stewards of capital and, therefore, we will make the appropriate decisions.”
Uber has assumed this aggressive strategy as investors continue to press for a path to profitability. The company still reported more than $ 1 billion in net losses in its latest quarterly earnings report and has announced hundreds of layoffs. Uber will report its results for the fourth quarter of 2019 on February 6.
In a note on Tuesday morning, Raymond James analysts said that the sale of Uber “demonstrates discipline” given the path to domination of food delivery in India “will probably take years and a significant investment.” The measure releases funds for Uber to invest in other more promising markets, analysts wrote.
“It is increasingly clear that Uber has a strong shared travel business and a food delivery business that it is rationalizing,” they wrote. “As Uber continues these initiatives over the next 12 months, we anticipate positive reviews and multiple expansions.”
CNBC Jim Cramer also praised the move Tuesday morning on “Squawk on the Street.”
“This action is undervalued,” Cramer said. “As they get out of the bad Uber Eatses (sic), it will go higher because it is an ecosystem.”
The price of Uber shares rose approximately 3% on Tuesday morning, adding approximately $ 1.7 billion to its market capitalization. Uber’s market value is now more than $ 61.5 billion.
It is not the first time that Uber has regressed in a market that has failed to overcome. In September, Uber said it would end its food delivery service in South Korea. The company failed to break the 75% market share of rival Woowa Brothers in the South Korean food delivery space, according to Reuters. While its passenger transport business faced legal problems and receded from the taxi industry in the region, Uber has continued to operate that service, as it will in India.
Uber market outlets are not always your choice. Uber will end its operations in Colombia at the end of the month, the company said, after a local judge sided with the country’s competition authority who discovered that the company broke market rules with its transportation business, as reported Reuters in December. The repression followed protests by Uber and similar services by taxi drivers who believed the services received an unfair advantage due to lack of regulation.
In London, Uber was stripped of its license to operate in November after the city’s transportation regulator said the company has shown a “fault pattern” that puts passengers at risk. Uber has appealed the ruling and is still operating in the region.
-CNBC’s Saheli Roy Choudhury contributed to this report
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