There’s more going on under the hood of a consortium’s planned $1 billion investment in Uber Technologies Inc.’s self-driving car unit than immediately meets the eye.
Softbank Group Corp.’s Vision Fund and other investors are set to pump that amount into the division at a valuation of between $5 billion and $10 billion. It’s almost certainly not worth anything near that much. The investment probably has more to do with Uber’s impending initial public offering than anything else.
The ridehailing company aims to sell shares publicly for the first time later this year. Let’s not forget that the Vision Fund is already one of the biggest investors in Uber. Based on the $7.7 billion Softbank said it invested in the San Francisco-based firm last year, the fund has a stake of about 15 percent. Were the mooted $120 billion valuation to be realized, that would drive the value of the stake to $18 billion.
Since GM sold a holding in its self-driving car division, Cruise Automation, last year, automakers and tech companies have realized these sales are a way of boosting their sum-of-the-parts valuations. After (who else?), the Vision Fund invested $2.3 billion in Cruise at a $12 billion valuation, GM’s share price jumped a commensurate 20 percent. Ford Motor Co. is now seeking to sell a piece of its equivalent unit to Volkswagen AG at a $4 billion valuation.
I suspect that Softbank’s motivation is similar. If it fronts three-quarters of the planned $1 billion, it’ll be paying $750 million but helping more than double the value of its total Uber investment. It surely can’t be a coincidence that Uber will host its first analyst day next week, according to the Wall Street Journal. The figure gives analysts a building block with which to construct their broader valuation of the company.
The major issue is that Uber’s technology seems to lag market leaders such as Alphabet Inc.’s Waymo significantly. It’s lost months if not years of research time after becoming embroiled in a contentious legal battle with the former Google unit, and temporarily halting road testing after one of its autonomous vehicles killed a pedestrian in Arizona last year. Navigant Research analyst Sam Abuelsamid ranked it 17th of 19 major companies developing the technology. That was below Navya SAS, a French firm with a 60 million-euro ($68 million) valuation. That makes even $5 billion look pretty punchy for the Uber Advanced Technologies Group.
The investment will solve one problem for Uber. It’s planning to start buying 24,000 sport utility vehicles from Volvo Cars this year. That could suck up more than $1 billion between now and 2021 – a capital commitment that might deter prospective IPO investors. The new investment will plug that gap, for now.
But it won’t solve another. Uber is reportedly only selling a minority stake, meaning that it will still have to book the unit’s hefty losses on its income statement ($750 million in 2017, per the Wall Street Journal). A majority divestment would have let Uber deconsolidate the unit, letting it cut the hefty expenditure from its reporting obligations as it tries to polish itself up for the IPO.
As ever with Softbank’s Vision Fund, it’s helping its portfolio companies crank through the gears to realize a greater valuation.
— Alex Webb (Bloomberg)