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Uber Aims at Divesting Indian Food Delivery Unit to Zomato

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Uber Technologies, Inc. UBER is set to discontinue its food delivery business in India. In a bid to cut back losses and emerge profitable on an EBITDA basis by 2021, the company has agreed to sell its Uber Eats operations in India to local rival Zomato.

Per the deal, Uber will own a 9.99% stake in Zomato in lieu of the sale of its Eats business in India. According to sources, the ride-hailing giant will receive approximately $172 million worth of Zomato shares in exchange for the transaction. As Uber shuts down food delivery operations in India, it will direct all restaurants, delivery companies and diners to Zomato.

Uber has been in talks to offload its loss-making Uber Eats India business (which started in 2017) since late 2018. Per the company, the ailing business is anticipated to have incurred a loss of $107.5 million in the August-December period last year.

With the Uber Eats India business accounting for 3% of the business' gross bookings globally, there might be an initial pinch on revenues from this unit following the cessation of operations. However, the closure will indeed help the company boost profits, given that a quarter of the company’s adjusted EBITDA loss in the first three quarters of 2019, came from its Uber Eats business in India.

Although the company will sever ties with India in food delivery business, it will continue to invest in India for expanding its local Rides business.

How Uber is Trying to Cope With Losses

Ever since going public on May 10, 2019, shares of the company have declined more than 15% against the industry’s 5.8% rise. Mounting losses (more than $7 billion in the first nine months of 2019) in the face of rising operating expenses (up 72.3% year over year in the first nine months of 2019), primarily sales and marketing, weighed on the company’s price performance.

To cut costs and improve efficiency, the company slashed its work force significantly last year. During third-quarter 2019 earnings release, Uber stated that it aims to focus consistently on financial discipline and hopes to be profitable in terms of EBITDA by the end of 2021.

Apart from the company’s decision to dissolve its India operations pertaining to Uber Eats, last year, it closed the Eats business in South Korea.

Zacks Rank & Key Picks

Uber carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Aspen Group Inc. ASPU, Match Group, Inc. (MTCH - Free Report) and Alphabet Inc. GOOGL. While Aspen Group and Match Group sport a Zacks Rank #1 (Strong Buy), Alphabet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Aspen Group, Match Group and Alphabet have surged more than 55%, 88% and 37%, respectively, in a year’s time.

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