Equity Research

Hitching a ride to success?

Despite being the most well-known ride-hailing app, it is questionable if Uber will continue a smooth drive into the future. The court cases they have been embroiled in have attracted the attention of the media and many potential customers around the world, and may ultimately lead to a rise in costs for Uber. As time goes on, the ride-hailing market is becoming increasingly saturated and Uber is losing out to competitors on price and ethical values. 

Uber Technologies Inc. (all details correct as of October 2nd)

Founded: 2009

CEO: Mr. Dara Khosrowshahi

Sector: Technology — Software, Application

Share price: $36.74

Market cap: $64.36bn

Road rage 

After a lengthy spat with the city regulator Transport for London, Uber has won the battle; allowing them to continue operating in London. Their licence to operate in the capital had been revoked over concerns about Uber’s safety practices. The case dates back to 2017, when the ride-hailing app was first deemed not “fit and proper” to operate, citing Uber’s “lack of corporate responsibility” when reporting serious criminal offences, as one of several factors — with the licence being removed, before judge Emma Arbuthnot reinstated it after concluding new governance arrangements were sufficient. But last November, the transport regulator chose not to renew their licence after another set of safety issues appeared, with the most egregious being a technical loophole allowing drivers to fraudulently upload their photos to other driver’s accounts. 

Following the victory, Uber’s new London licence comes with 21 conditions, jointly suggested to the magistrate by Uber and Transport for London, including appropriate identity checks for drivers. Uber will be relieved at the result, with the British capital being one of Uber’s most important markets, with 45,000 licenced drivers and 35 million regular passengers in the city. 

The roads are getting busy

This result comes as competition is rapidly increasing in the ride-hailing app market. Rivals such as the Estonian Bolt, Daimler-backed start-up Kapten — which merged with taxi app Free Now this year — and India’s Ola, are increasing their presence in London. Figures from Sensor Tower show that the Uber app was downloaded 2.9 million times in the year up to August 31st, down from 4 million downloads in the same period from 2018 to 2019. Indian competitor Ola’s downloads increased from 443,000 to 1.2 million in the same period, demonstrating that Uber’s lack of downloads is not down to depressed demand. 

Other apps are trying to offer an increasingly ethical service to attract customers, contrasting Uber’s next battle with the Supreme Court over workers’ rights. Bolt, whose presence is massively increasing, offers customers in Europe completely carbon-neutral rides via carbon offsetting. As sustainability is becoming a more significant decision-making factor for many consumers, this may be a good way of taking some of Uber’s customer base and capturing market share. However, Uber has committed to becoming fully zero-emission by 2040 — a nice promise, but is it too little too late?

A monopoly is all you need

It has arisen that Uber is considering the purchase of ride-hailing app Free Now, the joint venture from Daimler AG and BMW AG. If the deal was to go through, it would massively increase the market share Uber holds in Europe and Latin America. Free Now has struggled to attract additional investors during the pandemic so the acquisition by Uber could be just what the app needs. Other ride-hailing apps have been integrated into Free Now: Kapten, Beat, and Clever Taxi. Following the speculation, Uber’s share price rose 3.2% on Monday in New York — the share price has risen 20% this year. But there is no certainty the deliberations will lead to a transaction and the emergence of other bidders may lead to an emergency stop for Uber. 

The acquisition could be just what Uber needs to continue its success in the market. Uber’s strategy is based on attracting users, with prices that undercut the traditional taxi industry and squeeze out competition. Being able to charge such low prices relies on Uber keeping a monopoly in the ride-hailing app market — but this monopoly is yet to materialise. The industry has seen vicious price wars to gain market share, causing Uber to lose $8.5bn last year, Lyft to lose $1.5bn, and Free Now’s parent company to lose $2.1bn. 

It is unclear as to whether Uber’s business model works — a failure to gain a monopoly has meant they can’t charge the low prices they need to gain market share. The Free Now acquisition may be what Uber needs to finally achieve its goals.


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