Forget Grubhub, This Is the Deal Uber Investors Should Watch

Uber (NYSE:UBER) recently abandoned its bid for Grubhub, which would have merged the third and second largest food delivery platforms in America, respectively, to challenge market leader DoorDash.

Shortly afterwards, Grubhub agreed to merge with its European peer Just Eat Takeaway. Losing Grubhub could make it tougher for Uber Eats, which racked up an adjusted EBITDA loss of $313 million last quarter, to compete in the cutthroat food delivery market.

However, Bloomberg recently reported Uber could be making another deal — namely selling its stake in Yandex.Taxi, its ride-hailing joint venture with Russian tech giant Yandex (NASDAQ:YNDX), to generate fresh cash.

A young woman uses a ride-hailing app on her phone.

Image source: Getty Images.

What is Yandex.Taxi?

Uber merged its ride-hailing operations across Russia, Armenia, Azerbaijan, Belarus, Georgia, and Kazakhstan with Yandex.Taxi in a joint venture two years ago. Yandex currently owns about 59% of the joint venture, Uber controls 38%, and the employees control the remaining sliver.

Yandex.Taxi also houses the food delivery services Yandex.Eats and Uber Eats, the meal kit service Yandex.Chef, the grocery delivery unit Yandex.Lavka, and Yandex’s autonomous driving unit.

Uber valued its stake in Yandex.Taxi at $1.24 billion last quarter. Yandex previously planned to spin off the unit in an IPO, which was expected to fetch a valuation of $5 billion to $8 billion, but the market’s appetite for a new ride-hailing IPO waned considerably as the COVID-19 crisis kept passengers at home.

Bloomberg claims Yandex could buy out Uber’s stake and restructure it to complement its car-sharing business — which isn’t included in the joint venture. After next February, any transfer of the joint venture will be subject to the “right of first refusal” in favor of Yandex, which means Uber will be free to sell its stake to another party only if Yandex refuses to buy it out.

Should Uber sell its stake?

Last quarter, Yandex.Taxi’s ridership grew 40% year-over-year as its revenue surged 49% to 11.4 billion rubles ($160 million), or 24% of the tech giant’s top line. The lion’s share of Yandex’s revenue still came from its search engine’s online ads.

A woman uses a ride-hailing app.

Image source: Getty Images.

Yandex.Taxi generated an adjusted EBITDA of 115 million rubles ($1.6 million) last quarter, compared to a loss of 116 million rubles a year earlier. It attributed that bottom-line growth to tighter cost controls and more conservative investments in lower-margin units like Lavka.

By comparison, Uber’s adjusted EBITDA loss only narrowed slightly year-over-year from $869 million to $612 million last quarter as the ride-hailing unit’s positive adjusted EBITDA was overwhelmed by its losses at Uber Eats and other smaller businesses.

To cut costs, Uber gradually retreated from tougher overseas markets dominated by regional competitors. In 2016, Uber sold its Chinese business to market leader DiDi and took a stake in the company. In 2018, it merged its Southeast Asian business with regional leader Grab in exchange for a minority stake. It formed its joint venture with Yandex that same year as a continuation of that strategy.

However, Uber’s approach has generally been to stay invested with minority positions instead of cashing out. The company’s cash, equivalents, and short-term investments declined 20% annually to just under $9 billion last quarter, but its coffers won’t run dry anytime soon, so there’s no pressing need to sell its stake in Yandex.Taxi.

Take these rumors with a grain of salt

Yandex might be weighing the pros and cons of buying out Uber’s stake in Yandex.Taxi, but investors shouldn’t assume a deal will happen. It would arguably make more sense for the two companies to focus on stabilizing Yandex.Taxi’s profitability and spinning it off in an IPO when market conditions improve.

That outcome could benefit both companies and yield much bigger gains for Uber.

 




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