Uber’s Didi exhibit signals progress
By investing, by valuing, on Wall Street in general, assets can turn into liabilities (and vice versa) in an instant.
This is particularly true when a company has a stake in another, and that, according to the laws of the structure of the company, has the right to share the profits, fortunes … or, in some cases, the misfortunes of their strategic or financial holdings.
Take the case of Uber, which in 2016 sold its activities in China to Didi. At the time the deal was announced, Uber owned 20% of Uber’s capital, Uber $ 1 billion from Didi. As the Wall Street Journal reported at the time, the swap came after Uber invested billions of dollars in its Chinese operations and instead chose to become one of Didi’s major shareholders.
The old adage might apply here that if you can’t beat them, then join them – or at least buy a piece of them.
At the time, Uber CEO Travis Kalanick said that buying a little Didi “frees up substantial resources for bold initiatives focused on the future of cities – from autonomous driving technology to future of food and logistics. Operating in China “is only possible with profitability. We were a young American company entering a country where most of the American Internet companies had failed to crack the code and with the product that needed to be rebuilt, ”he said in the statement. More recently, the stake was reduced to 12% as Uber sold some of its stakes.
Sharing Didi’s fortune
We note that owning 12% of a company plagued with regulatory issues and other pressures means you get 12% of those pressures. You share the losses, as they accumulate and you hold the bet. We noted earlier in this space that Didi only makes a fraction of its sales (around 2%) from sites outside of China. So that means there is very little diversification away from headwinds, for example, being ditched from a WeChat or Alipay.
Uber, for its part, struggles with its own issues. In the latest earnings presentation in May, the company said its book value in Didi was worth $ 5.9 billion; It remains to be seen if there will be any write-downs in the coming quarters given the uproar around Didi, which has seen its stock drop since its initial public offering (IPO) and is disappearing from app stores in China.
As we noted in this earnings report, there are at least some green shoots in the core business of mobility, even as the business continues to pivot towards delivery. Gross delivery bookings increased about 166% in the last quarter, and the total number of trips made on the company’s platform remained stable year over year. Uber continues to post net losses, at $ 108 million last quarter, but the operating loss was $ 1.5 billion in the same quarter.
Bumpy roads lie ahead, at least for Uber’s exposure, by proxy, of sorts, to China.