Uber Goes Back to Its Roots
By Grayson Brulte | June 7, 2023
Uber is going back to its roots the same way GRAMMY award-winning artist Neil Diamond did in 2005. Under the leadership of Dara Khosrowshahi, Uber, a component of The Road to Autonomy Index, is embracing its heritage as a platform.
At its core, Uber is a global technology platform that connects two parties to engage in a transaction. These transactions could be anything from hailing a ride to having food delivered to ordering an autonomous vehicle with Waymo or Motional.
By focusing on its strengths as a platform, Uber is streamlining the business. This strategy is being rewarded by Wall Street, as the company’s stock has returned 56.66 percent year-to-date, compared with the S&P 500, which has returned 11.98 percent year-to-date (as of June 2, 2023).
It’s not just investors buying into Uber’s back-to-its-roots strategy — analysts are in as well. The company currently has a consensus rating of 44 buys, 4 holds and 1 sell, with an average 12-month price target of $50.31, equating to a potential return of 26.6 percent.
Getting here was tough. Mr. Khosrowshahi had to make hard strategic decisions, clean up the company’s culture and shed non-core assets that were bleeding cash with no short-term path to financial stability. One of these divisions was Uber ATG, which was burning significant amounts of cash and taking unnecessary risks, later revealed in court documents, in hopes of becoming the leader in autonomous vehicles.
This approach was a fool’s errand, as Uber never had the financial resources to compete with Alphabet or General Motors when it came to developing autonomous vehicles. After the untimely Uber ATG Tempe incident, Mr. Khosrowshahi along with the board of Uber, made the decision to “hand-over” ATG to Aurora, while investing $400 million in Aurora in exchange for a 26 percent stake in December 2020.
While this unloaded Uber’s problematic cash-burning division, the way in which it was conducted is still up for debate. The transaction at the time valued Aurora at $10 billion — today Aurora is valued at $1.69 billion, a valuation loss of $8.31 billion. While this could potentially reflect negatively on Uber, its holdings are currently worth more than $433 million, a paper gain of $33 million.
More important, Mr. Khosrowshahi sits on the Uber board, as his company now owns 39.01 percent of Aurora. That gives Uber significant sway over the future of Aurora. It will be interesting to see how this relationship evolves and the decisions Mr. Khosrowshahi makes to secure a return for Uber investors, including signing agreements with Aurora’s competitors Waymo and Motional to operate autonomous vehicles on the platform.
Could Mr. Khosrowshahi make the decision to sell Uber’s stake in Aurora to further streamline the business? Possibly. He has made similar moves by selling Uber’s 7.8 percent stake in India’s Zomato in 2022 and its $400m position in Middle East-based Careem in 2023.
All of these moves have significantly streamlined the Uber business into a platform. This is a trend that we only expect to see accelerating in the future. As Mr. Khosrowshahi has stated:
We want Uber to be the operating system for your everyday life: however you want to move around your city, and whatever you need, we want Uber to be your go-to app.
As we continue to shift to a smartphone app-first society, Uber becomes the infrastructure that enables the future of mobility. But it’s not just mobility — it will also be delivery services that leverage the Uber platform.
Uber recently announced a commercial agreement through which Serve Robotics (which was spun out of Uber) will deploy 2,000 autonomous delivery bots on the Uber Eats delivery platform in various U.S. markets.
This announcement is on the heels of Waymo partnering with Uber to seamlessly hail a Waymo vehicle inside of the Uber app, place an Uber Eats delivery and have it delivered autonomously.
Prior to the Waymo announcement, Uber and Motional, which is represented in The Road to Autonomy Index through Aptiv, which has a 50% stake in Motional, announced a 10-year partnership to create one of the largest deployments of autonomous vehicles (including autonomous deliveries) on a ride-hail network in the world.
Karl Iagnemma, President and CEO of Motional stated the following about the partnership:
This agreement will be instrumental to the wide-scale adoption of robo-taxis. Motional now has unparalleled access to millions of riders and a roadmap to scale significantly over the next ten years.
Mr. Iagnemma clearly gets that Mr. Khosrowshahi is taking Uber back to its roots in the same way Neil Diamond went back to his roots and played guitar in the studio for the first time in decades for his 2005 critically acclaimed 12 Songs album.
Mr. Diamond stripped it all away and it worked. The album was one his most successful and critically acclaimed studio albums of his career, debuting at Number 4 on the Billboard 200 album chart. The momentum carried over to his live show as well. Mr. Diamond started playing guitar onstage for the first time since the Hot August Night era in the 1970’s.
Going back to your roots and stripping it all down is a successful approach for a business in transition. This is the playbook. It has worked for countless industries and artists and now Mr. Khosrowshahi is implementing this strategy with great success. Let’s see where Uber grows from here.