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In a bid to ensure that it cuts losses on its journey to profitability, Uber is planning to sell the Indian arm of its Uber Eats business to Zomato.
Uber is reportedly very close to selling off its Uber Eats food delivery business in India. According to a TechCrunch report citing three people familiar with the matter, Uber is at the final stages of negotiations with Indian rival company, Zomato. If negotiations are successful, Zomato will take it over.
Valued at more than $2 billion, Zomato is easily one of the largest food delivery businesses in India and hasn’t made it very easy for Uber Eats since the latter launched in May 2017. The report has it that Uber Eats India is set to be worth $400 million according to the deal and if both companies agree, Uber might be required to invest anywhere from $150 million to $200 million in Zomato. This will give Uber an interesting stake in the company.
Another rival food delivery company in India is Swiggy which is reportedly backed by Tencent and South Africa’s Naspers. Swiggy is said to be worth more than Zomato at $3.3 billion and even though it is not part of the deal, both companies have made it difficult for Uber to create a big enough market in India. While both Swiggy and Zomato process an average of 1 million daily orders, Uber Eats has never done more than 600,000 in one day.
The company entered India and began giving out mouth-watering discounts as a way to attract customers when it first began. However, market conditions forced the company to discontinue the discounts, eventually losing a lot of business. Also, several executives including Uber Eats’ head of India and Southeast Asia Bhavik Rathod, and Head of Central Operations in India Deepak Reddy, have abandoned the company for unknown reasons.
This isn’t Uber’s first attempt at offloading Uber Eats. Last year, the company held talks with both Swiggy and Zomato but failed to reach an agreement. The decision to remain dogged with offloading the company falls in line with a statement made by Uber CEO Dara Khosrowshahi. During the company’s November earnings call, Khosrowshahi said “our strategy for Eats is simple: invest aggressively into markets where we’re confident we can establish or defend a #1 or #2 position over the next 18 months.” The CEO also said at a different event that the company will exit any market it can’t guarantee.
Uber is quite known for its inability to become profitable, one of the reasons it’s aggressively making sell moves. In 2018, it exited the Southeast Asian market after selling to rival Grab in an over $6 billion deal. As part of the agreement, Khosrowshahi also joined the Grab board.
Reports also have it that Zomato might be receiving a new funding round up to $600 million very soon. If this works out, the deal with Uber might be more easily reached.
Uber Technologies Inc. stock (UBER) jumped by 5.4% just yesterday, in response to news of the possible India sale. Currently at $30.05, UBER has climbed about 16% from its Nov. 14 lowest point when it dropped to $25.99. However, it is still a rather low price level compared to its post-IPO high observed in June. In the last three months, it has dropped about 13% as well.