Skip to content Skip to Search
Skip navigation

Careem could yet be hailed a smart buy for Uber

Careem Uber Reuters/Abdullah Rashid
Careem car in Mosul, Iraq: Uber takeover was largest for a homegrown Middle East tech startup
  • US transport company paid hefty premium
  • Disruptive tech acquisitions involve ‘intangible goodwill’
  • Autonomous vehicles to eliminate cost of drivers

The hefty premium Uber paid for Dubai ride-hailing rival Careem will prove worth it in the long run, analysts believe.

Uber, which has racked up nearly $33 billion in losses since its inception in 2009, paid $3.1 billion for Careem in January 2020 in what remains the largest deal for a homegrown Gulf tech startup.

This valuation included $2.48 billion of “goodwill”, Uber’s 2022 annual report shows. Goodwill refers to the excess purchase price of another company, according to Investopedia.

“There was a bubble. All assets in the sector were very expensive in 2019-2020,” said Marina Alekseenkova, managing director at London’s Hypothesis Research.

“The Middle East looks good for Uber in terms of economic activity, so Careem should be neutral-to-positive in its contribution to Uber’s earnings.”

From an investor perspective, goodwill is more of an accounting nuance than a true valuation, said Daniel Ives, managing director of equities research at New York’s Wedbush Securities.

“When it comes to any acquisition, especially in tech or disruptive tech, there will be massive amounts of intangible goodwill, especially deals like this,” he said. “The value of the asset has gone up.”

Uber should recoup some of its outlay soon, having agreed in April to sell a majority stake in Careem’s so-called super app to UAE telecom company Etisalat by e& for $400 million.

The “everything app” makes it “easier than ever to move around, order food and groceries, manage payments, and more”, according to Careem’s website. Uber will retain full ownership of Careem’s ride-sharing business.

Uber consolidates Careem’s operations into its accounts but provides only irregular information on the financial performance of its subsidiary, which operates in 70 cities across 10 countries in the Middle East, Asia and North Africa.

From January 2 to December 31 2020, Careem made a net loss of $218 million, Uber’s 2022 annual report states, describing its subsidiary’s revenue that year as “not material”.

It did not disclose any details for 2021 or 2022 or in its quarterly statements this year.

Careem, which did not immediately respond to requests for comment, continues to operate separately to Uber in the Middle East. Their original management team remains at the helm in what Ives described as a smart move.

If Uber had not done that, Careem “could easily have fallen apart”, he said.

Regional rival Swvl was valued at around $1.5 billion when it listed on the US Nasdaq in mid-2022. Its shares have since tumbled, with the company now worth just $3.9 million. 

Uber CareemReuters/Satish Kumar
Careem CEO and co-founder Mudassir Sheikha: the original management teams remains
Saudi stockholder

Uber’s Careem acquisition strengthened its connections with the Middle East. In June 2016, Saudi Arabia’s Public Investment Fund (PIF) paid $3.5 billion for an approximate 5 percent stake in Uber, valuing the US company at $62.5 billion.

Uber’s 2019 initial public offering was priced at $45 per share, giving it a market capitalisation of around $82 billion.

The stock has proved volatile, plunging in the months following its listing only to surge to an all-time high of around $64 in mid-2021.

Uber’s shares then slumped to a low of about $21 in June 2022, but have since rebounded, ending Tuesday at $44.08 – within $1 of its IPO price.

“In the long term it will be a good investment (for the PIF),” Ives said. “In the near term it has been painful, but it’s now starting to turn the corner.”

Tech stocks had plunged following a series of US interest rate hikes aimed at curbing inflation.

“Many tech companies have almost zero or negative free cash flow, so they suffered heavily from high interest rates and their valuations fell,” Alekseenkova said.

“But Uber is one of the few companies that demonstrated a strong control of operating costs and showed a good performance in terms of cash flow generation.”

Nevertheless, since its founding in 2009 to December 31 2022, Uber’s cumulative losses totalled $32.8 billion as it subsidised journeys to win customers from conventional taxi services and other transport modes.

Uber endured “struggles around execution, pricing, driver issues”, said Ives, but buying Careem has “probably been one of its better decisions”.

He said Uber was similar to Tesla, Amazon and Netflix, which also spent tens of billions of dollars to form their businesses and create a new industry category.

“Uber now has to do it profitably, but the billions that the company lost and investors lost is almost a near-term investment for longer-term success that we see them having over the coming decades,” Ives said.

Arrival of driverless vehicles

The development of autonomous vehicles by various companies including Uber, Apple and Google has been slower than expected.

Level five autonomy – in which fully driverless vehicles travel on public roads – was foreseen by 2025, but that now seems unlikely due to various difficulties.

These include uncertainty over accident liability, consumer reluctance, and complications in developing vehicle-to-vehicle communications systems.

Once fully autonomous vehicles are roadworthy, Uber can eliminate an important cost: its drivers.

“For the broader ride-sharing sector, autonomous vehicles are the Holy Grail, but that’s tough to attain given the regulatory and other risks relating to self-driving cars,” Ives said.

Nevertheless, he predicts within the next half-decade around 25-30 percent of Uber and Careem rides will be in autonomous vehicles.

Latest articles

PIF's Starbucks shareholdings were cut almost by half from 6.3 million shares to 3.8 million

PIF slashes Starbucks stake as it cuts US stocks by $15bn

Saudi Arabia’s Public Investment Fund (PIF) has slashed its US equity holdings by 42 percent to $20.6 billion, including its stake in Starbucks, the global coffee chain that has suffered calls for a boycott as a result of the Gaza conflict. The latest US government data highlights funding challenges facing the Saudi giga-projects.  The filing […]

Tunisia olives

Soaring olive oil exports help Tunisia balance books

Tunisia’s soaring olive oil exports have almost doubled to close to $1 billion in just five months, helping it claw back its current account deficit.   However the increased revenues merely “paint over the cracks” and the country is still probably heading towards a sovereign default, according to an economic expert. Tunisia’s current account deficit narrowed […]

Iraqi prime minister Mohammed Shia Al-Sudani attends licensing rounds for 29 oil and gas exploration blocks at the oil ministry's headquarters in Baghdad

Falling oil prices deepen Iraq’s fiscal imbalances, says IMF

Iraq’s fiscal imbalances have worsened due to significant fiscal expansion and lower oil prices, according to the International Monetary Fund (IMF). “The ongoing fiscal expansion is expected to boost growth in 2024 at the expense of a further deterioration of fiscal and external accounts and Iraq’s vulnerability to oil price fluctuations,” the Washington-based fund said in […]

Saudi aluminium producer Talco is offering 12 million shares

Aluminium producer Talco announces Saudi IPO

Aluminium producer Al Taiseer Group Talco Industrial Company (Talco) is the latest entity to reveal initial public offering (IPO) plans in Saudi Arabia. The Riyadh-based company, which was set up in 2009, is offering 12 million shares, a 30 percent stake, on the Saudi Exchange (Tadawul) at a nominal value of SAR10 ($2.67) per share. […]