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Uber Freight seeking investors

Unit reported to be in talks to raise $500 million in funding

Uber Technologies (NYSE: UBER) is reported to be in talks to take on additional investors in its digital brokerage unit, Uber Freight. Bloomberg published an article attributed to “people with knowledge of the matter” who said the San Francisco-based company is seeking to raise $500 million in incremental funding.

The report said this would place the unit’s valuation around $4 billion. Assuming an annual run rate of the nearly $200 million in revenue the division generated in the first quarter, Uber Freight is firmly in the 20 largest brokerage companies in the nation. Uber’s total market capitalization is roughly $54 billion.

In May, the company said it was “re-evaluating” its noncore segments, like Uber Freight and autonomous driving. Uber has been shedding employees, cutting costs and rolling back its capital commitments in efforts to preserve liquidity amid the pandemic, which has dented its core ride-sharing business.

Uber Freight adjusted course earlier in the year, placing more emphasis on reaching profitability versus growing scale at any cost. The company as a whole was expected to be profitable in terms of earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2020. That timeline was recently pushed back to 2021 as the COVID-19 lockdowns spread.

The first quarter of 2020 resulted in a $64 million adjusted EBITDA loss for the unit, a sequential improvement from the $81million fourth-quarter loss but more than twice the loss from the first quarter of 2019.

Last September, Uber Freight announced it was moving its headquarters to Chicago, with plans to nearly double the unit’s workforce. The goal was to add 2,000 employees over the next three years, with the bulk of those new hires working in the brokerage segment. However, by January it was reported that some of Uber’s new office space would be put up for sublease.

Shares of UBER are up more than 6% in after-hours trading.

Click for more FreightWaves articles by Todd Maiden.

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.

3 Comments

  1. So all the original Uber Freight investors who are probably wondering when they will get paid back must now be wondering if their investment is being further watered down. I was at a trade show where Uber Freight had the biggest booth. My first question to the bright, young person I first encountered at the booth was “What is Uber Freights long term objective?”. Her immediate answer, without hesitation, was “To take over the world.” As the conversation progressed, it became clearer that their go-to market strategy was give big discounts to shippers to haul their freight and find a lot of small, independent carriers willing to “do backhaul work”. Nowhere in the conversation did I hear “Be a profitable, well run, responsible transportation entity.” It was all about get market share, regardless of cost. As some point, they will need to figure out a way to make money to provide a return to their investors (maximize shareholder wealth). That can only be done two ways. Raise rates to the shippers (at which point, Uber must compete with all the other legitimate trucking companies) or reduce costs. Their biggest cost will be paying drivers / fleet owners / carriers to haul the freight. So reducing costs would be done on the backs of the infinite number of “filthy-rich drivers” out there. Not!

    Let’s assume they get to a 95% OR (basically putting 5% to the bottom line). To pay back $500 million means they would have to generate revenues of (500 million / 5% ) = $10 billion. Currently Uber is losing money. So it is a hard pass from me as an investor.

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