The $68B gorilla continues to expand globally in places like India and Brazil and is still chasing autonomous driving. However, it will have to stem its losses ahead of an eventual IPO, which may lead to rollbacks in contested regions like Southeast Asia.
Uber is known for many things, but one thing that has remained constant is its ability to steal the spotlight. Once the darling of tech media, one of Silicon Valley’s most lauded growth stories, and the progenitor of an entire category of on-demand startups, Uber’s tumultuous 2017 has seen the company’s fortunes shift almost overnight.
Scandal after scandal brought accusations of everything from misogyny to intellectual property theft. This has turned the executive ranks of the world’s most valuable private startup into a revolving door. An exodus of senior leadership was capped by an investor revolt against co-founder and CEO Travis Kalanick, who had been virtually synonymous with the company and its famously aggressive culture.
New chief executive and former Expedia CEO Dara Khosrowshahi is just weeks into his new role, but faces pivotal decisions on how best to repair the company’s battered image and right the ship strategically. With a stated target of taking Uber public within the next 18-36 months, Khosrowshahi must strike a balance between financial discipline while also maintaining the growth and opportunity narrative that seduced investors and helped give Uber its lofty valuation.
Under new management, Uber’s strategies in both international markets and key fields of research like autonomous vehicles are open to revision. Key takeaways from our analysis focus on the company’s major initiatives:
- Balancing “paying the bills” and “big shots”: Uber’s new CEO committed to both instilling financial discipline ahead of a potential IPO and remaining invested in major forward-looking initiatives (such as autonomous vehicles). Aside from the considerable task of repairing the company’s damaged image and culture, finding a balance between these goals will be his major challenge going forward.
- Uber rethinks global strategy: Uber’s growth ambitions have begun shifting away from the pugnacious, attack-on-all-fronts strategy and indiscriminate spending of its earlier years, although the company’s latest financials continue to show a growing top-line as well as considerable cash burn. Our jobs listing analysis reveals that the company is still actively hiring in India, Brazil and Mexico. However, with a stated vision of taking Uber public within the next 18-36 months, Khosrowshahi may look to further narrow the focus on Uber’s efforts abroad to rein in money-losing efforts. Southeast Asia is one hotly-contested region where the company is spending heavily against the well-financed Grab and Go-Jek.
- Recent dealmaking focuses on divesting costly regional operations: Uber has withdrawn from its China and now Eastern European operations, retaining a significant stake in both while ceasing involvement in day-to-day operations. The company has now established a template that it can return to should it decide to draw down losses in other geographies.
- M&A to date has emphasized mapping and AI/AVs (autonomous vehicles): A late entrant into the now-fierce race to develop AVs, Uber has turned to M&A to bridge the gap in related competencies such as mapping and artificial intelligence. Its highest-profile deal to date was its acquisition of self-driving truck startup Otto, headed by Google Self-Driving Car (now Waymo) veteran Anthony Levandowski. That acquisition has led the company into a potentially devastating lawsuit with Waymo.
- AI, AVs remain a priority: Despite the upheaval in the wake of Waymo’s lawsuit, Uber is still hiring actively for its autonomous vehicle development group (Advanced Technologies Group or ATG). The unit comprises 6% of Uber’s total job listings, with the company seeking talent in the white-hot field of autonomous vehicle engineering. Uber also added a prominent AI researcher to lead a new ATG self-driving team. However, the unit’s long-term future is in doubt, with the Waymo lawsuit a looming threat and ATG requiring a sizable and sustained financial investment.
- Uber scales back other side ventures, focusing on food delivery: Outside of its core ride-hailing business, the company has retrenched in its once-hyped UberRUSH courier service effort, focusing on meal delivery platform UberEATS instead. The company continues to push UberEATS into new markets. Uber is also pursuing significant talent to support its food delivery service; 14% of the company’s open job listings mention UberEATS in the title. Uber has also recently launched its Freight service targeting the trucking brokerage market, but the new initiative has yet to gain meaningful traction.
table of contents
- Background on Uber and its new CEO
- Financials & valuation
- Deals: Acquisitions & investments
- Competitive landscape and a word on SoftBank
- Patent data analysis
- Uber initiatives by sector
- Final words
BACKGROUND ON UBER and its new ceo
Though a surprise pick for the position, industry observers have generally praised Dara Khosrowshahi’s appointment, variously noting his experience helming a travel aggregator as well as overseeing a turnaround as Expedia’s chief executive. Expedia was losing share to competitors like Priceline when Khosrowshahi assumed the helm in 2005. The company was criticized for passing on an early chance to acquire Booking.com, which was acquired by rival Priceline and went on to become the world’s largest hotel booking site.
However, Khosrowshahi was willing to commit to long-term fixes, including migrating Expedia’s disparate brands to a common tech platform and recognizing the need for Expedia’s business model to evolve (from its preferred “merchant model” where it bought blocks of hotel rooms, to a hybrid model with the newer, lower-margin “agency model” pioneered by Booking.com in which platforms act more as intermediaries). Not coincidentally, this is more like Uber’s marketplace model.
These efforts have undergirded Expedia’s recent uptick in acquisition activity, visualized below with our Acquirer Analytics tool. The company has made at least one purchase annually since 2015, and made three major acquisitions in 2015 alone:
(Clients can click here to browse Expedia’s rise in acquisition and investment activity.)
Khosrowshahi’s efforts resulted in the company more than quadrupling its gross travel booking value and doubling its pre-tax earnings under his leadership. Uber’s stakeholders are no doubt hoping that Dara-the-dealmaker will be able to lead another successful turnaround. He will likely have the missed Booking.com in mind as he weighs risk against reward for Uber’s future opportunities.
It’s worth mentioning that Uber also passed on a chance to merge with or acquire a major competitor: domestic rival Lyft offered to merge with Uber in 2014 for a share in the combined company, but talks broke down after Kalanick refused to budge on the share offered to Lyft (as Brad Stone writes in The Upstarts). Uber was again named as one of the potential buyers that Lyft had sought for itself in 2016, to no avail, according to the New York Times.
Though Uber still dwarfs Lyft by a considerable margin, the latter’s increasing US market share and partnerships in the autonomous vehicle space represent a growing thorn in Uber’s side. If Uber were able to strike a deal with its competitor under its new CEO, it would able to draw down its domestic US spending in a major way to focus on international efforts and frontier initiatives like autonomous vehicles.
Although this teardown will primarily focus on data points around Uber’s business strategy, it goes without saying that Uber and its new CEO face cultural and legal issues almost too numerous to list that have negatively affected the company’s prospects and investor confidence. Moreover, its guiding principle to date has been Kalanick’s mantra of “growth above all else,” which has defined the company to date not just culturally but also strategically (and so will resurface throughout our analysis).
The company’s alpha-male, growth-at-any-cost mentality and willingness to skirt regulatory and ethical boundaries arguably enabled it to crack open stagnant taxi and transport markets in the first place, attracting unprecedented amounts of capital in the process. In the same vein, a good deal of Uber’s self-made crises can also be traced to the institutionalization of these traits. This double-edged sword mirrors Kalanick mentor Mark Cuban’s description of the former CEO, saying in a New York Times interview:
“Travis’ biggest strength is that he will run through a wall to accomplish his goals. Travis’ biggest weakness is that he will run through a wall to accomplish his goals.”
Taken to their extreme, these philosophies have manifested themselves in the company’s Greyball tool for deceiving law enforcement, disregard for California DMV regulations for autonomous vehicle testing, and near-eviction from Apple’s App Store, among many other scandals. Allegations of pervasive sexual harassment and discrimination have also come to light, most notably from former engineer Susan Fowler.
It is worth noting that many of these issues are not wholly new: Uber’s abuse of its “God View” tool was first reported on 2014, as were sexist remarks from Kalanick and general knowledge of the company’s less-than-scrupulous business practices and sometimes insensitive treatment of drivers. However, for years these issues failed to slow Uber’s growth and fundraising momentum, as investors eagerly piled into technology’s hottest company. For longtime Uber watchers, 2017 was the year these issues came to a head with material impacts on the company’s business and investor outlook.
Active lawsuits and investigations involving the company include Waymo’s suit for intellectual property theft (which will go to trial), early investor Benchmark’s suit to remove Kalanick and three related seats from Uber’s board (which has been sent to arbitration), and a DOJ foreign bribery law probe, just to name a few.
Finally, Uber has also toed the line with the cutthroat competitive tactics it has employed against its rivals. These include Uber’s SLOG program for undermining competitors and its “Hell” program exploiting a Lyft vulnerability to track its opponent’s drivers. While these tactics are ruthless and have often been grouped together with the company’s other unscrupulous practices, their legality is undetermined. The FBI has begun investigating the software, although a lawsuit over the “Hell” program was recently dismissed in California federal court.
Khosrowshahi now faces the significant challenge of reforming Uber’s culture; former Attorney General Eric Holder’s investigation into the company resulted in a lengthy list of recommendations. Aside from extricating Uber from these many scandals, the company’s new chief executive must tackle a range of serious business challenges. One fundamental issue is replenishing the depleted ranks of Uber’s senior leadership:
Chief among these is Uber’s vacant CFO position, which has become a sore subject with some increasingly uneasy investors (Benchmark singled out the issue in its lawsuit against Travis Kalanick). The company has technically been without a CFO for over two years, a nominal head of finance Gautam Gupta departed for Opendoor in May. A CFO would play a critical role in preparing for an eventual IPO, which Travis Kalanick famously thumbed his nose at the thought of pushing forward:
“I say we are going to IPO as late as humanly possible. It’ll be one day before my employees and significant others come to my office with pitchforks and torches. We will IPO the day before that.”
By contrast, by his first all-hands meeting at Uber’s helm, Khosrowshahi had already floated the potential goal of taking Uber public within the next 18 – 36 months. The company has begun more regular, though still selective, financial disclosures over the past year. According to Axios, its latest Q2 2017 figures show continued top-line growth, with gross bookings up to $8.7B and adjusted net revenue hitting $1.75B (both roughly doubling year-over-year).
These figures do encompass the period of a large number of Uber’s scandals from earlier this year and the #DeleteUber campaign, but do not cover Kalanick’s departure and board civil war in Q3 2017. Uber’s adjusted losses, though narrowing, are still considerable and also exclude stock compensation, which the company is known for paying out generously in lieu of high cash salaries. Uber burned roughly $600M in cash through the quarter, with its total cash holdings down to $6.6B from $7.2B at the end of Q1 2017.
Coming back to Uber’s growth-obsessed mantra, the numbers reflect that the company has done well by this criteria, with its central ride-hailing business continuing to expand. The company’s booming top-line speaks to the still-considerable strengths of the company and opportunity ahead of it.
Though its product has evolved over time, from a tactical standpoint Uber has largely stuck to the same aggressive playbook: flooding new markets with incentives to recruit a critical mass of drivers and using subsidized fares to lure in riders. (Critics have labeled this as venture-financed predatory pricing, with the company often steamrolling regulators and misleading drivers in the process.)
Tracing this back to Uber’s overall strategy, last September Ben Thompson of Stratechery voiced concerns over Uber’s strategic finesse should the company meet an obstacle too stubborn to be overcome by the brilliance of its product-market fit and executional prowess:
“I do worry about this potentially fatal flaw: when and if Uber encounters a problem that requires more than simply hustle and execution, does their executive team have the temperament, strategic mindset, and deep-rooted understanding of their customer base to make decisions that aren’t so easily swept under the rug of product-market fit?”
With thorny questions surrounding Uber’s scandals, in addition to its plans for profitability, autonomous vehicles, international expansion, and beyond, perhaps it’s true that the company can no longer afford to simply be operationally brilliant yet strategically lacking. Khosrowshahi has acknowledged Uber’s multiple priorities, one being instilling financial discipline to “pay the bills” and the other being to “take big shots” and build for the future.
While it is too early in Khosrowshahi’s tenure for meaningful strategic changes to have taken hold, the company has already pruned its worst loss-making ventures and refocused its business both geographically and organizationally. We’ll explore those moves and other potential targets for Khosrowshahi in the sections ahead.
JOB LISTING ANALYSIS
For a view into Uber’s organizational priorities and growth areas (both geographically and vertically), we analyzed the company’s open job listings as of 8/29/2017. Note that these listings are for Uber corporate, and exclude listings or openings for the hundreds of thousands of driver positions available at the company worldwide.
The following graphic shows the distribution of Uber’s over 1,900 open job listings by team and subteam, where available. Click on the image to enlarge.
As mentioned above, Uber’s traditional strategy has historically emphasized growing and optimizing the supply side of their two-sided marketplace (that is, its network of drivers). The company’s billions in losses stem in large part from its spend to recruit and retain its drivers, a basic formula Uber has stuck to in both established markets like the US and areas of opportunity it has targeted internationally.
It’s not surprising, then, that the boots-on-the-ground work of launching, scaling, and maintaining operations in markets across the globe between the Operations & Launch and Global Community Operations teams accounts for over a third of Uber’s active job listings at 38.3%. These teams are on the front lines of Uber’s interactions with its “driver-partners” (in company parlance) and riders.
Engineering and product
On the general engineering and product side, Engineering (14.7%), Product (4.4%), and Design (3.1%) collectively account for roughly a fifth of the company’s openings. Peeking into Engineering subteams reveals a push on data science and mapping talent, both of which have been points of emphasis for the company.
Uber’s Advanced Technologies Group (ATG) is the Uber unit attracting the most media attention (and legal scrutiny), primarily for its work on self-driving vehicles spanning both passenger cars and trucks. The company’s recruiting efforts for ATG are apparent, with nearly 6% of its open listings filed under the unit (or just over 100 jobs). We’ll be diving into detail on ATG later on, but Uber’s job listings show ongoing recruiting efforts for deep learning and autonomous vehicle experts, among the most in-demand engineering roles in contemporary tech. Despite the legal specter hanging over the group, Uber is still investing in its autonomous vehicle efforts for the moment.
Looking at the geographic spread of Uber’s roles, generally, over half of the company’s open positions are based in North America. Asia represents just under a quarter of its listings, followed by Europe and South America.
Diving into specific countries, the US accounts for the lion’s share of roles as expected, with 48.6% of Uber’s open listings in its home country. We also analyzed the top ten ex-US countries where Uber is seeking talent:
Notable for their absence are markets such as China and Russia, evidence of Uber’s retrenchments abroad. The company’s August 2016 sale of its China unit to Didi Chuxing marked a sudden reversal in what had been a stubborn win-at-any-cost philosophy that cost Uber and its competitors billions (more on those deals in a moment).
Instead, Uber’s new international strategy now involves a more targeted approach, with a particular focus on developing markets. Uber and its rivals sense an opportunity to “leapfrog” the traditional vehicle sales model as consumers in these markets grow wealthier, pushing their ride-hailing and fleet-based services where ingrained cultures of individual car ownership have not been established. With ambitions in logistics services and transportation beyond just ride-hailing, these players are also referred to as transportation network companies (TNCs).
These international growth priorities are evident in the graphic, with India ranking as the non-US country with the most open job listings at nearly 8% of the total (or 150 jobs). Uber is also aggressively seeking talent in Southeast Asia, with Singapore, Indonesia, and the Philippines all making the top 10. Outside of Asia, Uber is also recruiting heavily in Latin America, with Brazil and Mexico collectively representing over 10% of the company’s open positions.
Uber’s SVP of Global Business highlighted India, Brazil, and Mexico as Uber’s top priorities; indeed, these three countries rank as Uber’s top 3 ex-US destinations in our jobs listing analysis. (We’ll cover that later on, with a deep dive on the stiff competition Uber faces from well-financed, home-grown rivals across these regions, including Grab in Southeast Asia, Ola in India, and 99 in Brazil, and more.)
Meanwhile, hiring in Uber’s traditional overseas headquarters of Amsterdam remains significant, representing 4.4% of its total. However, Uber’s European job listings in aggregate represented just under a tenth of its total, with the company listing more openings in emerging Asian markets and its home North American market.
Also not highlighted here is the Middle East and North Africa, another growth market where another ride-hailing competitor (Careem) has raised over a half-billion in capital. Egypt ranks just behind Japan for 11th place among Uber’s top ex-US hiring destinations, with 1.1% of the company’s open job listings.
FINANCING & VALUATION HISTORY
Uber has reached a level of mainstream consciousness uncommon among private startups, not just for the ubiquity of its service but also the vast sums of capital it has raised at eye-popping valuations. Our funding and valuation data reflects Uber’s meteoric rise since its March 2009 founding as UberCab (note that funding raised specifically for Uber’s China operations is broken out separately here):
(CB Insights clients can click here to access Uber’s profile and directly view all of its financing, investor, and valuation data.)
Growth was especially dramatic in the early- to mid-decade, culminating in Uber raising upwards of $6B in capital in 2016 alone. With Uber’s cap table crowded with dozens of investors and employees tied to famously restrictive “golden handcuffs” until recently, Uber has looked beyond standard equity financing to avoid further dilution for its shareholders. One of the company’s last major financings was a $1.15B leveraged loan in July 2016, arranged by four banks including Morgan Stanley and Goldman Sachs. Uber is said to be paying a yield of roughly 5% on the loan, according to the Wall Street Journal.
Uber has tapped countless sources of capital to amass its war chest, and thus sports one of the most diverse investor networks of any private venture-backed company. We used our business social graph to highlight four key groups of Uber backers:
The company is famous for its clutch of early angel and VC investors, which the company has likewise lifted to stardom; Uber’s meteoric rise in valuation could single-handedly return the fund for these VCs, and generate a fortune for early angels. Crucially though, many of these returns are still on paper, with most investors not seeing any liquidity beyond secondary market transactions. Investors have been rattled by their inability to lock in returns, combined with the uncertainty now surrounding the company. This friction has contributed to ugly confrontations like Benchmark’s ongoing lawsuit against Kalanick (as disclosed by the firm’s complaint, Benchmark holds a roughly 13% equity stake, with Kalanick currently holding around 10%).
Veteran VC and longtime Uber champion Bill Gurley departed the company’s board in late June, after leading the push to pressure Travis Kalanick into his resignation. His board seat was filled by Matt Cohler, another general partner at Benchmark, but the firm remains in an uncomfortable position that has drawn ire from both other Uber investors and the venture industry as a whole. Shervin Pishevar, another early Uber backer, is now leading a coalition of investors pressing Benchmark to sell its Uber shares and leave the company’s board.
However, this controversy does highlight a growing concern within the investor community, as startups (particularly highly-valued unicorns) continue to stay private longer with multi-billion-dollar late-stage financings and access to diverse sources of capital, while early backers see limited liquidity despite enormous paper gains. In some ways, Uber has been the banner-carrier for this movement, with the company raising billions from investors like mutual funds and the Saudi sovereign wealth fund that aren’t typical private market investors, enabling Kalanick to avoid taking the company public.
Indeed, legendary VC Fred Wilson of Union Square Ventures sided with Bill Gurley on founders’ and management teams’ fiduciary responsibilities:
“I agree with Bill Gurley on this. [Uber] should be a publicly traded company. When you take money from me, am I getting money from you? You have a responsibility to give me my money back sometime. You can’t just say f— you. Take the g—— company public.”
Another notable investor is GV (formerly known as Google Ventures), which first invested in Uber’s 2013 Series C alongside TPG. Longtime Alphabet exec David Drummond joined Uber’s board as part of the investment, but departed the position in late 2016 over a conflict of interest. Drummond had been “shut out” of meetings as Uber’s autonomous vehicles ramp-up brought intensifying competition with the Google Self-Driving Car project (now Alphabet company Waymo).
Since gorging itself on new capital in 2016, developments on the fundraising front have been quiet since the company’s Uber China divestment last August. Although the company still holds more than $6B in cash, there are signs that Uber’s business challenges and endless scandals have weighed on investor confidence in 2017. Uber’s mutual fund backers, which regularly disclose their private company valuations, have become the most outwardly visible indicator of this, as some recently marked down their Uber positions by up to 15%.
Potential new investors on the horizon include previously-mentioned SoftBank (which has already secured stakes in nearly all of Uber’s major rivals as well) and Dragoneer Investment Group, which are both said to be weighing a flat round, according to Bloomberg, that would bring Uber up to $1.5B in new capital, while also buying out up to $10B from the company’s existing shareholders. This deal would shake up the status quo considerably, as discussed in our analysis of SoftBank further below.
Despite not raising any significant disclosed funding in over a year, Uber still sits atop our unicorn tracker as the most valuable private VC-backed startup in the world:
Chinese counterpart Didi Chuxing ranks among the few unicorns with a comparable valuation, last pegged at $50B as of Didi’s mammoth $5.5B raise in April 2017. For its part, Uber’s most recent $68B valuation dates to over a year ago, when Didi Chuxing itself invested $1B in Uber as part of the Uber China exchange (more on Uber’s divestitures below).
Though our analysis of liquidation terms has found a recent resurgence in investor-friendly senior liquidation preferences, our enhanced deal terms and valuation data shows relatively vanilla deal terms on this round, with a 0-1x liquidation multiple and pari passu preference. However, given the leverage that Uber has historically commanded over investors, it’s not surprising that Uber has been able to raise on largely favorable terms.
Clients can see more on divestitures below.