Author(s): Raghu Gopal
On Monday, Uber announced it will sell its business in Southeast Asia to ride-sharing rival Grab, ceding the region's 640 million potential passengers. Under the agreement, Uber will take a 27.5 percent share of the business, so it will still have a significant strategic stake in the area. Singaporean Grab claims to serve 5 million daily users in Southeast Asia.
Uber's sale to Grab follows several strategic deals during the past couple of years. In 2016, Uber sold its China operations to local ride-sharing service, Didi Chuxing, and last year, it merged its Russian business with local rival Yandex in a transaction valued at $3.7 billion.
Grab now operates in eight countries in Southeast Asia: Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Despite its humble beginnings, the company has made strides during the past two years, and currently offers more than 10 transportation services including cabs, private cars, carpooling, bicycle-sharing and bike taxis.
The next stage of ride-sharing in the region will pit Grab against Indonesia's Go-Jek, a $5 billion start-up backed by Alphabet and Tencent. Go-Jek is leading in its home market where it pioneered the type of financial products and on-demand services that Grab is only just beginning to launch in Indonesia. Go-Jek also plans to expand to new markets starting from 2018. The two companies will be fierce rivals.
We expect that Uber's withdrawal will help Grab secure more resources for new investments in core areas, particularly as the Singaporean company needs to focus on developing more integrated digital services. It's already venturing into services such as payments, where it competes with rivals such as Alibaba and Tencent. These two players are building their presence in Southeast Asia with their Alipay and WeChat Pay services.
Uber is showing that it can be nimble, quickly adjusting its strategy as local conditions dictate. The move to consolidate should enable the company to become more sustainable, helping it to cut losses and push toward profitability. The deal with Grab will also allow Uber to invest in other more lucrative markets, like India and Brazil, while taking a stake in Grab's growing businesses. We believe Uber is likely to have been encouraged to repeat the approach it used in China with Didi Chuxing by SoftBank, which itself has invested more than $5 billion in Didi, over $1.3 billion in Uber and more than $1 billion in Grab.
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