Uber profitable in the U.S., but not in China

Ronny Kerr · February 18, 2016 · Short URL: https://vator.tv/n/4369

Chinese ridesharing service Didi Kuaidi aggressively undercutting Uber to control the market

Competing in the ridesharing space is tough business. Especially in China.

It’s well-known that ridesharing companies like Uber and Lyft, along with many other sharing economy services, have been increasingly clashing over control of the market through aggressive price cuts and promotional discounts. The idea is twofold: attract a ton of new customers away from taxis or competitors while also establishing a strong network and brand.

While this strategy works in obvious ways, anyone playing the game has to have massive warchests to fund those deep discounts. And while sharing economy companies have been very effective at raising those warchests—with Uber taking the cake—that doesn’t make it easy.

Uber is learning this in China, where the company is struggling to turn a profit.

“We’re profitable in the USA, but we’re losing over $1 billion a year in China,” said Uber CEO Travis Kalanick in an interview with BetaKit.

“We have a fierce competitor that’s unprofitable in every city they exist in, but they’re buying up market share. I wish the world wasn’t that way. I prefer building rather than fundraising. But if I don’t participate in the fundraising bonanza, I’ll get squeezed out by others buying market share.”

That “fierce competitor” is Didi Kuaidi, which raised $3.7 billion last year to Uber's $4.5 billion. Backed by heavyweight investors SoftBank, Alibaba, Tiger Global, Weibo, and others, Didi Kuaidi is the eighth most valued private company in the world with a valuation of $15 billion. The company has the advantage of focusing its efforts in China while Uber faces off with competitors in markets from the U.S. to Europe to India.

Just last week, Uber closed a new $200 million investment from LetterOne, a Luxembourg-based private equity and venture capital firm headed by Mikhail Fridman. Though the company didn’t confirm what the new funds would be used for specifically, my hunch is that it would help boost Uber’s efforts where the money was raised (in western Europe).

Back in China, it’s hard to tell who is winning between the two biggest ridesharing companies because numbers around ridership and revenues are not easy to compare. Last month, Didi Kuaidi said it booked 1.43 billion rides in 2015, more than the one billion Uber has done in its entire lifetime. Those numbers may not be perfectly parallel since Didi Kuaidi also provides buses and enterprise services.

Uber is officially valued at $51 billion, though there were (still unconfirmed) reports circulating at the end of 2015 that the company had struck a $62 billion valuation in newer deals.

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Uber is a ridesharing service headquartered in San Francisco, United States, which operates in multiple international cities. The company uses a smartphone application to arrange rides between riders and drivers.