Why Uber Splurged on a $170 Million Investment as It Laid-off Thousands

• Demand for ride-hailing is not expected to return to pre-COVID levels in the short-term to medium-term after the pandemic is contained.
• Nearly 40% of pre-COVID-19 ride-hailing users will abstain or reduce their use of the services.
• Electric bikes and scooters are unlikely to face a similar fate.

Uber (NYSE: UBER) on Thursday led a $170 million investment round  in micro-mobility firm Lime. One day earlier, Uber announced it would be laying off 3,700 employees in the wake of the coronavirus pandemic. That’s around 14% of the firm’s workforce.

While Uber already had an existing electric bike and scooter unit known as Jump, the deal will see Lime handle the ride-hailing giant’s micro-mobility division.

Here is why Uber was left with no choice but to invest in the electric bike and scooter firm.

The Sharing Economy Won’t Be the Same Post-COVID-19

Border closures and stay-at-home measures instituted to contain the coronavirus pandemic have ravaged the sharing economy. So far, Uber’s gross bookings have dropped by 80%.

Even after the coronavirus pandemic is over, bookings are likely to remain subdued.

A recent CarGurus study reveals that 39% of pre-COVID-19 ride-sharing users  will reduce their use of the services or stop using them completely. This is due to the risks of public transport, real or imagined, in the wake of a highly contagious disease.

Micro-mobility firms, on the other hand, will benefit from this fear as the electric bikes and scooters are meant for individuals only. Users are also not riding in an enclosed space.

Lime’s incoming CEO, Wayne Ting, alluded to this in the statement announcing the investment by Uber:

Micro-mobility will be vital to the new world affected by COVID-19 and we are already seeing this as cities begin to move again. With our new financing and expanded offerings, we are strongly positioned to meet the needs of riders in a safe and reliable way.

Uber Adds Yet Another Revenue Stream

Uber’s diversification into other bets such as delivering food has proven beneficial during the coronavirus pandemic. The ride-hailing firm’s food delivery unit Uber Eats enjoyed 89% growth year-over-year in the first quarter  outside of India.

This was one of the few bright spots in the company’s first quarter. Uber’s losses surged by 190% in Q1.

Lyft’s experience further underlines the importance of diversification in the sharing economy. Lyft (NASDAQ: LYFT) didn’t have a similar service and found itself scrambling to diversify revenue streams by launching a meal and grocery delivery service mid last month .

Raising the stakes in micro-mobility is another step for Uber in adding revenue streams.

Lime Was Too Cheap an Investment to Pass

Before the coronavirus pandemic hit, Lime was on the verge of being the “first next-generation micro-mobility company to reach profitability.”  This is according to outgoing CEO, Brad Bao.

Last year in April, Lime was valued at $2.4 billion. During its recent funding round, Lime was valued at $510 million, a drop of 78.75%. Based on the drastically reduced valuation, the micro-mobility firm was a bargain that Uber found too good to pass.

And it seems the stock market agrees with Uber’s decision to invest in Lime. On Thursday, UBER closed 11% higher.

The stock is slightly up year-to-date, but it has fallen 26% from its February high. With savvy moves like this Lime investment, it could be fully recovered sooner than expected.

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Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.

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