Sounak Mitra
Cab-hailing firm Uber has filed for an initial public offering (IPO) to the US Securities and Exchange Commission last week. Reports say that bankers are valuing it at $120 billion. But the San Francisco-based start-up will have to improve its financials before the offer hits the markets. In the three months to September, Uber lost $1.07 billion, a 20 percent increase from $891 million the previous quarter.
One way Uber could improve is to focus on India – the only major market in Asia where the company still operates. India is probably the only market where Uber can scale up fast. It only operates in 31 cities compared to its rival Ola’s base of 110 cities.
While Uber’s valuation is primarily linked to how well it sold its vision and growth prospects to its investors so far, its gross billing which comes from the total number of rides it completes also matters. To increase that, Uber will have to get more users to use its services more often.
Naturally, India becomes important. The country has more than 1.3 billion people, and most of the market is not covered by Uber. In the US, Uber has around 41.8 million users as of March 2018, followed by 17 million in Brazil where China’s Didi also entered recently making competition tougher for Uber. Uber has 750,000 drivers in the US but only 300,000 active drivers in India who complete around 10 million trips a week. Over the next 10 years, Uber’s CEO Dara Khosrowshahi said that the company aimed to increase the number of trips by 5-10 times. India is currently the third largest market for Uber, after the US and Brazil, accounting for around 11 per cent of its total trips.
While Uber’s CEO Khosrowshahi had said earlier this year that India is the healthiest market for Uber in terms of growth rates, the going won’t be easy.
From available public numbers, it is clear that the company has seen a decline in growth in terms of total trips. According to market intelligence firm KalaGato, Uber’s market share dropped to 39.6 percent in December 2017 from 42 percent in July 2017. In April 2018, the company was clocking 10 million trips a week, up 6.4 percent from July 2017. However, the growth in July 2017 over 11 months ago was 67 percent.
That said, Uber doesn’t have many choices. It has exited eight markets, including China in the past two years. Therefore, it necessarily has to double down on its bet in India to drive growth even if such growth is unlikely to yield much profit. After all, India has consumer base to expand Uber’s scale. The company has already announced its plans to double its technology headcount in Bengaluru and Hyderabad.
In February, Khosrowshahi also said Uber considers India as the laboratory for the next six billion consumers that the company aims to have with different services. That makes India a core market for the cab hailing company.
Besides, Uber’s recent experiments with Uber Eats, its food delivery service, has seen a seven fold growth in the past four months and now has around 20 per cent of the market.
Uber’s success in India is crucial for the company’s growth and thus key to a successful IPO. Otherwise, its local rival Ola, also backed by its investor Softbank, may emerge as an acquirer over a period leading to a similar fate that Uber had in China when it had to sell its operations to Didi.
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