Softbank’s investment in Uber is a potential game-changer in the region. Merger or partnerships between Grab and Uber may be happening soon.
By Joelyn Chan
Speculations of a possible sale of Uber’s Southeast Asia (SEA) unit started in February 2018. According to CNBC’s sources, Uber has plans to sell its SEA business to Grab. In exchange, Uber wants stakes in Grab. At the time of CNBC’s press release, there was no official comment from both ride-hailing firms. They have since said that they do not comment on speculations.
Regardless of the truthfulness of that news, it reflects a possibility. It has been five years of intense competition between America’s Uber and SEA’s Grab. Grab started off in Malaysia and had expanded over SEA. As if Uber did not exist, it has proclaimed its title of SEA’s leading ride-hailing platform. Most of the time, Grab will be the first mover. It will launch into one of the SEA market, and Uber will follow suit. In ASEAN, only Laos and Brunei remain untouched.
Sources: Uber (1,2) , Grab, Reuters, Tech In Asia (1,2,3,4,5)
Uber and Grab have similar offerings but different approaches
Both companies aim to alleviate pain points in transportation. In 2017, Grab celebrated its fifth-year anniversary. But, Uber had already past its fifth-year mark in 2015. Uber’s head start of two years allowed it to create a global presence. It has presence in over 58 countries. Its rapid growth amazed the world and skyrocketed its valuation. Grab, on the other hand, spent five years focusing on only SEA. It highlights its value proposition of safe travels, community benefits and empowerment. Grab’s regional focus outshines Uber’s slapdash approach. Uber has been getting into more regulatory struggles. Such stumbling stones hinder its effort to catch up with Grab.
Asia contributes around 20% of the total rides in Uber. Although the percentage is small, it has the potential to grow. However, Uber’s finances do not seem to support further attempts to flourish in the region. Apart from keeping check on growth in every region, Uber has more offerings in its pipeline. For instance, its website suggests a potential roll-out of UberHealth and UberFreight. It is no wonder competitors target on Uber’s gap while fighting for market share. Uber has too much on its plate, and it is not competing well in the fight for SEA. Unlike Uber, SEA means everything to Grab. Grab will be in for the long run. It will continue to go all out to build better partnerships with its stakeholders.
Uber’s past records of selling its business for stakes
For a high-growth company, selling part of its business may be a strategy too. In 2016, Uber left the second largest economy, China, and sold its business to its rival. Didi Chuxing acquired Uber’s China operations and gave 20% stake to Uber. If Uber could give up an opportunity as huge as China, what is fragmented-Asia to Uber?
In 2018, Uber continues to exchange its business for stakes. That way, it does not have to fight on all fronts, and it still has an indirect share in the market. It also enjoys the profits earned. Recently, Uber Russia merged with Yandex for a 37% stake. All these moves fit well into its grand plan of Initial Public Offering (IPO) in 2019.
Softbank Capital’s investment sparks talks of potential consolidation
One reason for the speculation of Uber SEA sale is Softbank Capital’s investment. Softbank holds a reputation for buying into high valued tech startups. The Japanese investment firm has a huge appetite for the tech industry. It has since used around a third of its Global Vision Fund. The fund started off with US$100 billion, and it has been used to invest in 30 companies.
Since 2014, Softbank has been a key investor of Grab. It has invested US$3 billion, making it the leading backer of the firm. In 2017, it turned its attention to Uber. With 15% stake, it is now the largest investor of Uber too. The stake in Uber, which has a valuation of US$48 billion, did not come cheap. It came with a US$2 billion price tag.
To Uber, this stake buy is good. Softbank would want both its investment in Grab and Uber to succeed. There could be more partnerships and less rivalry. Softbank’s presence as an investment company and two new board seats will spur the firm forward to its IPO.
Uber is not leaving, for now
When Uber China finally raised the white flag, it was after its competitor evolved. Didi Chuxing had merged with its other competitor and secured stronger investors. Tech giants like Alibaba, Tencent and Apple had supported Didi over Uber. So, the current situation in SEA indicates that Uber is near the tipping point. But, it is still not time yet. As of January 2018, Uber is doubling down on emerging markets with new leaders. Its CEO has also made his first visit to SEA. These announcements could dispel current speculations about Uber’s plan to sell SEA. However, it could also be Uber’s last fight in the region.
