The car-hailing app stakes are growing, both literally and figuratively. Uber Technologies plans to borrow as much as $2 billion on the back of a $3.5-billion investment from Saudi Arabia. That gives the Silicon Valley pioneer led by Travis Kalanick an impressive war chest, but one that could dwindle quickly amid the expensive and escalating battles Uber is waging in India and China.
Tapping lenders is unusual for a relatively young and still unprofitable company, especially one that has gone through seven equity fundraising cycles en route to a $68-billion valuation. What's more, Uber has hired banks to raise the new funds from the leveraged-loan market, where rates of, say, five per cent could cost it $100 million a year.
That pales next to the other costs of doing business, though. The company has raised at least $14 billion since a Series A round in early 2011. An estimated $9 billion of cash on hand suggests Uber has burned through $5 billion. Throw in a $2-billion line of credit and the possible $2 billion in loans, and Uber could soon be sitting on $13 billion of financial firepower.
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There's good reason for Uber to build cash balances on a par with the likes of General Electric and Walmart Stores. Even as it generates a profit in the United States, Kalanick said earlier this year that Uber is losing over $1 billion annually in China. Its biggest rival there, Didi Chuxing Technology, just secured another $7 billion in equity and debt funds, according to The Wall Street Journal. Competing for drivers and passengers could accelerate the drain for both.
India is proving equally cutthroat. Local operator Ola, which counts Didi as an investor, is on the hunt for up to another $1 billion in funds, depending which local news report is right, as Uber ratchets up its efforts throughout the country.
US tech companies have struggled to crack these markets, especially China. Alphabet's Google, eBay and Groupon are among those that have retreated. Even Apple has struggled of late, with sales in the Greater China area tumbling by 26 per cent last quarter. For now, Uber is racing to compete in coveted populous markets. It may yet crash - but it is at least protected by a big cash cushion.
