People carrying out online stock trading could soon have a new stock to deal with. Uber Technologies Inc., the ride-sharing firm, could be heading to an IPO (initial public offering), with the company's China wing now being sold for $1 billion. That is an indication that Uber is having too much on its hands to manage. While the rumors were always there, the sale is probably an indication that the IPO is just around the corner within the coming 18 months.
Losses in China Drove Uber to Strike Didi Deal
Uber was, in fact, facing losses worth $1 billion each year in China. Its sale to Chinese rival Didi Chuxing gets rid of those losses and makes the company look more attractive for investors. This is essential if the company must get a high IPO valuation, particularly when there is apprehension that the company's revenue growth could be slipping down.
One of the major factors for the declining growth is that Uber has more or less saturated the ride-sharing market in the US. Stats by eMarketer suggest that the percentage of adults using ride-sharing has increased in 2014 by 57% and in 2015 by 51.4%. But that growth rate could slow down to merely 20.5% in 2016 and then experience a steeper dip to just 7.2% through 2018-end. So Uber could struggle to find a market big enough for its success. It could move into the suburbs and the smaller towns but that would not be quite as lucrative since there would be much lesser number of riders.
Tough Competition Overseas
The overseas competition is largely Uber's own doing. Its unique business model has seemed quite attractive and has been copied by various local providers in overseas regions. And there are carriers running on other business models such as Lyft also competing for space. Developing countries such as China and India also have localized taxi and ride-sharing services. So the competition overseas is quite tough, and developing markets are harder to be made lucrative than developed markets. That perhaps explains Uber's sale of their Chinese operations. However, the absence of a large market such as China could limit the overseas business growth of Uber.
Uber currently operates in 72 countries and more than 400 cities outside the US. The non-US operations need to be strengthened and increased for Uber to find more growth opportunities. Meanwhile, potential investors would need to watch for any news from the ride-sharing firm.
Uber's Last Evaluation
When Uber was last valued, it stood at $68 billion. That could bring it into the biggest 15% of the companies in the S&P 500 Index. The company's CEO however suggests waiting for as long as possible before the move is made.
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