Uber's Plan to Pump More Money Into Loss-making Eats Will Heat up the Foodtech space
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Uber, known for revolutionizing ride-hailing across the world, spooked investors after reporting a wider third-quarter loss but said it plans to invest heavily into the loss-making food delivery venture Uber Eats over the next couple of quarters.
“At least over the next couple of quarters we still see a lot of money flowing into (Uber Eats),” chief financial officer Nelson Chai said on a post-earnings call.
Adjusted net revenue from Eats, the food delivery business, more than doubled to $392 million from the year-ago quarter while adjusted loss from the segment was $316 million, compared with $189 million a year earlier.
In India, the food delivery space has seen a massive surge in demand over the last few years with homegrown Swiggy grabbing the largest share of the pie with Gurgaon-based Zomato, which started as a data aggregator on restaurants, becoming a major competitor as well.
The online food delivery market in India is expected to grow at over 16 per cent annually to over $17 billion by 2023, according to a report published by consultancy firm Market Research Future earlier this year.
Amid such growth, the comments from Uber could mean more cut-throat competition.
Deep-Pocketed, Focused Rivals
Even though Uber has a much larger valuation than its biggest competitor in the Indian food space, Swiggy holds the advantage of having to spend almost all of its funds on one area of focus.
With a $1 billion funding late last year, Swiggy’s valuation shot up to $3.3 billion. For a firm that was launched in 2014, the growth has been exponential.
As Uber’s bigger loss showed on Monday, the focus on diversifying into areas other than ride-hailing is going to result in more cash-burn, and as a publicly-listed company, that might not be a welcome move from investors’ standpoint in the near-term. Uber’s shares have lost more than 30 per cent since its high-profile IPO in May.
The likes of Swiggy, on the other hand, are shielded from stock market scrutiny.
Adding to the woes of an international company like Uber is the rise of Zomato. Despite facing the wrath of restaurants for its 1+1 offers on food and drinks to certain paying customers, the start-up has continued to pump it up in the delivery market.
Zomato is in talks to raise $600 million in a new round of funding led by existing investor Ant Financial, The Economic Times reported last month, citing two people familiar with the matter. Ant Financial is a subsidiary of Chinese e-commerce giant Alibaba.
If the new funding happens, Zomato’s valuation could cross $3 billion, the report said.
Can Uber Afford It?
As of September 30, Uber’s cash and cash equivalents stood at $12.65 billion.
The numbers might seem massive but one must also consider the scale of its multiple businesses and the company’s recent comments.
On Monday, the San Francisco-based company said it would post a positive earnings before interest, tax, depreciation and amortization by the end of 2021, as it attempted to soothe investor sentiment.
Uber’s net loss was $1.16 billion in the reported quarter compared with a loss of $986 million a year earlier.
Whether Uber’s focus on investing more in its food delivery unit would bear results is yet to be seen, but for the average consumer, tougher competition in the space is essentially the beginning of another season of deep discounting and compelling offers.