By Douglas MacMillan, Sam Schechner and Lisa Fleisher
Ride-sharing service Uber Technologies Inc. said Thursday a new
round of funding valued it at $41 billion, a bet by some of the
world's top investors the firm can sustain a breakneck global
expansion pace despite fierce challenges from regulators and taxi
companies.
The San Francisco-based company collected $1.2 billion that
enables it to expand its workforce, lure new drivers, test a
delivery service and subsidize prices in some of the 250 cities
around the world where it operates. The closely held company has
raised eight times as much as its closest ride-sharing rival, Lyft
Inc.
The funding is a vote of confidence in Travis Kalanick, Uber's
co-founder and chief executive whose brash personality has courted
controversy. A recent privacy scandal stirred by one of Mr.
Kalanick's deputies appeared not to faze investors focused on
Uber's business prospects.
Uber is now valued at $41.2 billion, easily the highest for any
private startup now backed by venture capitalists, and above the
market capitalizations of publicly traded companies including Delta
Air Lines Inc., Charles Schwab Corp., Salesforce.com Inc. and Kraft
Foods Group Inc.
Now, the five-year-old company must prove it can turn a mobile
app for hailing a ride into a significant and profitable global
business. Its app, which lets people hail a car from professional
or nonprofessional drivers with a few clicks and a credit card, has
become a part of daily life in cities from Anchorage to Shenzhen,
China.
Some of that cash will go into defending its services. Uber is
in fierce fights with local regulators in many places where it
operates. It has faced protests by taxi drivers, shutdowns and laws
aimed at forcing ride-sharing services into compliance with safety
measures and work rules governing taxi operators.
Uber also is exploring using its fleet of drivers to transport
goods and services in addition to people. The company has tested
deliveries of items including ice cream, flu shots and fresh meals
and recently poached the head of Google Inc.'s same-day delivery
business.
The latest financing assumes that Uber's rapid expansion
overseas will overcome these hurdles and continue apace, said Bill
Gurley, a partner at Uber venture investor Benchmark and a board
member of the ride-sharing company.
"International expansion probably is the key theme of the
fundraising," said Mr. Gurley. "We feel remarkably good about where
we stand in the domestic market and our real growth initiatives are
focused internationally."
Uber profits by keeping 20% of the fare paid on most rides on
its service and gives the rest to its drivers, who work as
independent contractors.
It made hundreds of millions of dollars in revenue last year and
is growing sales at a clip of more than 40% a quarter, said a
person familiar with the company's operations. That is an increase
from earlier this year, when Mr. Kalanick said revenue was doubling
every six months.
By the end of next year, Uber expects to be operating at an
about $2 billion net annual revenue rate, excluding driver pay,
according to the person familiar with the company's financials.
Such growth is coming from a cookie-cutter global expansion, where
the company moves quickly to open up shop, splash out incentives to
sign up drivers and then hire lobbyists and lawyers to gird for
legal challenges from taxi companies and regulators.
"They are doing exactly what they need to do to change the
market," said Dave Ashton, co-founder of SnapCar, another app-based
car service in France that competes with Uber. "They don't even
make any effort to comply with what they think are bad laws."
That plan doesn't always work. Uber last week suspended
operations in Nevada after a judge issued an injunction against the
startup amid accusations that it competes unfairly with taxis
because it doesn't follow the same rules regarding drivers,
insurance and more. Elsewhere, regulators in Brussels are readying
new laws that would allow Uber and taxis to coexist, while a
decision from a French court over the possible banning of Uber is
due Dec. 12.
In Europe, Uber has been the focus of violent protests by taxi
drivers and regulatory bans on a carpooling service it calls
UberPop that was unveiled this year. UberPop, which uses drivers
without professional taxi or chauffeur licenses, is banned in
Brussels and facing court challenges in Berlin. In France, the
national consumer-protection agency and the Paris prosecutor say
the new service is illegal and are backing a suit against Uber in
commercial court.
Uber's response last month was to hold a news conference at its
Paris office to declare that the firm would expand UberPop in
Paris. In a presentation before giving televised interviews,
executives said their goal is to have 70,000 drivers without
professional licenses picking up fares across Paris in two
years.
Uber executives say they are operating under outdated laws that
they fully expect to change once lawmakers see the service's
popularity with constituents.
"If every time somebody wants to ban us, we just go along with
that, we wouldn't be in business," said Mark MacGann, Uber's main
lobbyist in Europe and the former head of government affairs at
NYSE Euronext in Brussels.
Uber's strategy has been to get a foothold in a market in any
way possible, whether it offers a way to hail traditional metered
taxis, livery cabs or drivers without professional licenses through
its ride-sharing services. The key is to get potential customers to
download the app and then expand the range of services.
In London, the company has tried to recruit taxi drivers, but
many drivers of London's iconic black cabs refuse to work with a
company they believe is breaking the law. Cabdrivers say the
smartphone app that calculates fare based on time and distance is
tantamount to a taximeter, which is only allowed to be used by the
more expensive black cabs.
Any delay into a city costs Uber potential market share. Uber
hasn't successfully cracked the Dublin market, for example, where
the London-based competitor Hailo Network Ltd. is widespread.
Authorities in Berlin and Hamburg banned the service. In
response, Uber lowered the fares drastically in an attempt to
appease passengers. But the low fares make it unattractive for
drivers to offer their services. In recent weeks, Uber cars have
been unavailable in the city.
Mr. Kalanick said in a blog post on Thursday that the Asia
Pacific region is a priority for the company's international
growth. It recently opened in Vietnam and Singapore, joined with a
rental-car firm in Jakarta and plans to add rickshaws in India.
But the company also faces increased scrutiny in Thailand,
Vietnam and Singapore, where regulators are examining the service's
legality. On Monday, Thailand's transport minister, Prajin Juntong,
said the government would ask Uber to cease its operations there
because it uses private cars that lack fare meters, among other
issues.
Uber hopes to recruit prominent investors in India, Latin
America and the Middle East as it raises $600 million, with the
goal of fostering powerful new allies who could help the company
clear obstacles to growth, according to people familiar with its
goals.
Uber is also seeking to rebuild its public image in the wake of
controversial comments made last month by one of its executives,
who suggested in a private dinner that the company should do
opposition research on journalists critical of its business. The
incident sparked concerns about Uber employees' access to its
customers personal data, and Sen. Al Franken (D., Minn.) called on
the company to explain what data privacy policies it has in
place.
"We also need to invest in internal growth and change," Mr.
Kalanick said in the blog post. "Acknowledging mistakes and
learning from them are the first steps."
Uber's latest valuation is double the amount set by investors
just six months ago and is nearly 12 times last year's total. The
company didn't disclose which investors participated in the
funding.
No other private tech startups are valued anywhere near Uber.
Four companies currently have $10 billion valuations--home-rental
site Airbnb Inc., software company Dropbox Inc., mobile-messaging
service Snapchat Inc. and Chinese smartphone maker Xiaomi
Inc.--though those valuations could climb quickly with a newly
announced funding round. Various reports have said Xiaomi is
raising funding at a valuation above $40 billion.
Uber has now raised more than $2.7 billion from a wide range of
investors, including mutual-fund managers Fidelity Investments and
Wellington Management; venture-capital firms Benchmark, Kleiner
Perkins Caufield & Byers and Menlo Ventures; and private-equity
firm TPG Growth.
Chase Gummer, Newley Purnell and Friedrich Geiger contributed to
this article.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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