Uber Technologies Inc., is reportedly in talks with its rival, Careem, a Dubai based application. Careem has grown as the biggest ride-hailing app in the Middle East since its founding in 2012.
Careem now has more than 30 million customers, and its local knowledge and home-field advantage have made life tough for Uber since it entered the market in 2013.
ompanies may announce a cash-and-stock transaction that values Careem at about $3 billion. Careem was valued at more than $2 billion at its last funding round in October.
Both companies have declined to provide any statement as negotiations are still in the works and are yet to come up with a conclusion.
This move could be a tactic Uber is trying to play, as the as the grab-hailing application has been searching for new avenues for growth as the company is said to go public within the year.
Uber is valued at around $70 billion on the private market, making it the most highly valued US startup in the world. It could reportedly fetch a valuation of as high as $120 billion in its Initial Public Offering next year.
Uber said that it lost $1.07 billion in the three months ending in September, up from an $891 million loss in the quarter prior, as the company invests in newer services ranging from food deliveries to scooters.
The latest results highlight the challenge Uber faces in trying to simultaneously manage its sizable losses while showing the kind of rapid sales growth that investors look for from a newly public technology company.
Uber has a mixed track record in international markets. Over the last three years, it has retreated from China, Russia, and other Southeast Asian countries including The Philippines, Malaysia, Vietnam, Myanmar,
Uber was happy with its expansion in the regions, but the announcement of going public pressured the company to change its strategy to gain a leg up amongst other competitors once its IPO is declared.
Uber has been working on its global ambitions and positioned itself in growth markets such as the Middle East. CFO Nelson Chai said in November that the company had invested in “high-potential markets in India and the Middle East where we continue to solidify our leadership position.”
In this market, a merger usually is a signal that one or both companies are suffering from the costs of competition,” said Michael Ramsey, senior director analyst at consulting firm Gartner. “A merger, theoretically, reduces the cost of keeping drivers. There are some benefits of scale for using a single back-end, but mostly it is a reduction in competition.”
Khaldoon Tabaza, founder of Dubai-based startup operating firm, iMena Group told CNN that “Careem would likely lean more toward an acquisition by Uber to protect value created, and avoid further losses once Uber has more firepower as a result of its IPO,”
However, regional instability could raise risks for Uber, he added. Careem operates in 22 cities in Pakistan, where a recent political tension is brewing with India and has raised concerns of renewed conflict between the powerful neighbors.
But, Careem can be influenced by powerful investors.
In 2017, Daimler Automotives invested in Careem a few months after it announced it would work with Uber to introduce self-driving cars on its network. While the Saudi government is backing both companies, paying $100 million for a stake in Careem in 2016 and pouring $3.5 billion, the most from a single investor, into Uber the same year. Combining the two apps would give Uber complete dominance of the Middle East market.
The issue, however, if Uber and Careem take complete dominance over the Middle East market, will it still be able to provide its consumers the convenience of rate and car availability that made it a popular choice? Will its market allow the rise of fares to raise revenue ultimately?
With the rise of ride-hailing applications, if Careem and Uber decide to merge and decide on raising fare rates and decrease car availability, other competitors may rise and see the market as a challenge and offer something better.
If a sale were to go through, it would be the second takeover of a Middle East unicorn after Amazon (AMZN) bought e-commerce startup Souq in 2017.