Swiggy is buying UberEats in $330 Mn: What value does it see?

In what could be the first retreat for ride-hailing firm Uber in India, its food delivery arm UberEats is all set make a tactical exit by selling operations to its rival Swiggy.

The company is in advance stage of talks with Swiggy to sell its Indian business in a share-swap deal. The deal, which is reported to materialise by March, will give ride-hailing firm around 10 per cent stake in Swiggy, which is currently valued over $3.3 billion.

This essentially means that the Indian arm of UberEats is valued about $330 million.

Uber sees it as a part of its strategy to control losses before going for a $120 billion IPO. Over the years, UberEats is considered a significant revenue generator (about 13-15 per cent) for the company in the global market.

After being in India market for 20 months, UberEats claims to do over 2 lakh delivery a day with a gross sales run-rate of $200 million.

However, this is about three to four times less than its competitors and top two foodtech firms - Swiggy and Zomato. Ola that had acquired foodpanda last year initially went berserk with discount and freebies but has curtailed the marketing budget by 70-80 percent in the past few months.

Last year, Uber executives had claimed that India is the fastest growing market for UberEats in the world. In the last few months, it has also expanded its markets to Hyderabad, Chennai, and Pune.

Though market analysts find ground reality completely opposite. Uber still sees a high loss in the Indian market.

UberEats was losing about $15-20 million a month in India, said ET report quoting an investor.

As per an estimate, in comparison, both Swiggy and Zomato bleed $35-45 million a month.

And, they have been successful in keeping the ante high through a constant flow of investments. Last year Zomato raised $410 million from Ant Financial whereas Swiggy raked in $1.3 billion in multiple rounds.

What seems apparent for Uber here is, it is looking for another safe retreat, as it did find with Grab for its transport and food business in Southeast Asia, to save itself from growing losses and have a stake in the growing business.

Meanwhile, the bigger question is for Swiggy - why is it acquiring UberEats? And an even larger question asks what value proposition is driving this deal?

Many experts believe that the deal has no rational besides killing a distant third competitor. Given that Swiggy is likely to kill UberEats at some point after the acquisition, it doesn’t look like UberEats will be adding any dish to Swiggy’s plate.

The buzz about this deal also revoked memories from 2015 when Ola had acquired struggling Taxi4sure for almost no value addition.

Entrackr has checked with many senior executives at Swiggy but this piece of news is as surprising to them as for others. Interestingly, they have the same question - how does UberEats make sense for Swiggy?