The final deal size for UberEats may change but the current round of negotiations involves a stock deal for the business and Uber may also invest in the Gurgaon-based online food delivery and restaurant discovery platform’s ongoing $500-600 million round.
While discussions with Chinese payments major Ant Financial-backed Zomato have been going on for several weeks, Uber has also sent feelers to rival Swiggy more recently but those talks are yet to take shape.
“The talks with Zomato are now progressing towards a term-sheet and discussions are more realistic this time around,” said one of the sources mentioned earlier.
The sale talks come as Uber is under pressure to reach profitability after its lacklustre IPO, with the share price down more than 33% from the listing price. For the food delivery business, UberEats, the India market has been a drag on global margins and the company recently said on the analyst call that it will exit markets with low returns on investments, focusing on markets where it can be the first or second player. It has already shut UberEats in South Korea in September.
UberEats is a distant third in the Indian food delivery market with 250,000-300,000 orders a day in the country, as compared to 2-2.5 million by Swiggy and Zomato, both of whom have claimed leadership. The average order value on UberEats is also lower at around $2 as compared to over $3-4 on Zomato and Swiggy, said one of the sources briefed on the deal.
“We don’t comment on rumour or speculation,” said an Uber spokesperson, while Zomato said “no comments” on TOI’s queries. An emailed query sent to Swiggy didn’t elicit a response till the time of going to press.
UberEats had also held talks with Swiggy, Zomato, and Amazon India earlier this year for a sale before the San Francisco-based ride-hailing major’s IPO in May. Swiggy and UberEats had advanced discussions earlier this year but a deal did not go through because of differences in valuation besides taxation and legal issues.
Talks for the acquisition come even as Zomato is in the midst of raising capital where it has already got a commitment from existing backer Ant Financial for $200 million, said one of the sources mentioned earlier. The funding round will value Zomato over $3 billion, and a potential share-swap may also happen using that benchmark.
The deal is attractive for Zomato as it will help it strengthen presence in the cities in south India, which has till now been a strong area for Swiggy. It will also help it get an edge in terms of market share in its battle with Swiggy and get a new strategic investor on board.
Both Swiggy and Zomato were losing about $40-50 million earlier this year, which has now come down. For instance, Zomato’s major shareholder Info Edge said that the company has seen losses come down from $45 million a month in March to $20 million in October. UberEats has projected a loss of Rs 1,451 crore or about $200 million for 2020 in India, according to filings with registrar of companies.