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  • Charles, overnight came news that Uber, the ride-hailing app,

  • has secured a 3 and a half billion dollar investment from Saudi Arabia's sovereign wealth fund.

  • Let's start by asking, why on earth does Uber need this money?

  • I thought it was swimming in cash as it is.

  • It does have a lot of cash, and boy does it need a lot of cash.

  • I mean if you at its figures, it's growing at rates that are very hard to get your head around.

  • I mean we only know a little bit about it cuz it's a private company.

  • The sort of figures we have are (subject) come from a leak.

  • But effectively its first half revenues for last year were way more than the whole of the year before,

  • so [it's] growing at over 100% but still burning cash.

  • So the only reason it has a whole lot of cash is for a private company, and this is one of what the features that makes it really interesting.

  • It's raised a huge amount of money in private placements.

  • So this 3 and a half billion adds to something like 9 or 10 billion or more that's already been raised privately, and it's valuing it at 60 billion dollars so far already.

  • So it needs that cash because it's currently still at that growth phase that means you burn a lot of it investing in new growth in new cities (every) all the time.

  • And it hasn't yet reached that point of turning a profit as it were.

  • Okay, well in the old days of course, company if you wanted a load of cash from investors, you go to a stock exchange to get it.

  • Presumably an IPO is not on the cards here.

  • Is that because they don't want to IPO, they want to remain a private company?

  • Or is it because they don't have the profits yet to tell a compelling story.

  • Well it's interesting. I mean not having profits hasn't mean... didn't put off Amazon a long time ago.

  • But then whenever they score this sort of poor cash figure, they kind of got worried, Amazon.

  • So Uber seems to have an unusual degree of confidence that it can keep going as a private company in this kind of state.

  • Is it unwilling to go private... public? Yeah, absolutely.

  • I mean partly they've seen the sort of hassle you get when you become a public company, you get subjected to more scrutiny.

  • And Uber is arguably even more controversial than the presidence it's looking at, like Facebook.

  • Wherever it goes, wherever it tries to grow, it tends to attract its regulatory scrutiny, protests from local incumbents, the taxi companies it's competing against.

  • So, it's probably thinking, we will have an easier time if we can raise cash at this rather handsome evaluation, but keep away from all of that scrutiny.

  • And of course it avoids the hassle of external investors as well.

  • So if you're a Netflix or a Tesla Motors and you've constantly got people on your case about your profits and your cash flow,

  • Uber avoids all that by staying private.

  • Yeah, and that's a huge amount of the chief executive's time.

  • Yeah, and what about for the Saudi's?

  • I mean Saudi is famously trying to diversify their economy away from heavy oil dependence.

  • Where does it fit into the scheme of things for them?

  • Well, Uber as a service is incredibly popular in Saudi Arabia.

  • Partly because women are not allowed to drive, 70-80% of Uber users in Saudi Arabia are women, and so it's growing quite fast there.

  • This is another advantage from Uber's point of view.

  • Saudi Arabia investing 3 and a half billion in this company means they know they're not going to get regulatory problems there, it's gonna remain a popular service.

  • As for Saudi Arabia, changing their economy this way, well of course it has a new economy shtick to it compared to the old oil-based economy they are.

  • Whether they actually gain any particular technological advantage by having the investment, I'm not so sure.

  • If Uber turns out to be profitable and makes a huge amount of money than the 60 billion evaluation,

  • if it matches what Facebook did, that might double or triple.

  • So a great investment from the financial point of view,

  • I struggle to see how Saudi Arabia's basic economy becomes less oil dependent just cuz they've made a good punt on a ride-sharing app though.

  • Charles, thanks very much. -Thank you.

Charles, overnight came news that Uber, the ride-hailing app,

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Saudi Arabia’s $3.5bn bet on Uber | Lex

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    Kristi Yang posted on 2016/06/08
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