Uber wagon will roll on

Unfortunately for drivers, Uber is unlikely to get its license back for over a year

The first most important question for Uber drivers after London’s regulator stripped Uber Technologies of its London license is whether it’s appeal will be upheld.

Unfortunately for them, we doubt it, though obviously no one but Transport for London can be certain.

Investor concern contained

As for private investors, they will be more concerned about the potential impact on Uber’s valuation at an IPO that the company has pencilled in as soon as 18 months away. On this, it’s worth noting that a string of PR disasters and board room disarray only began to turn a corner a few weeks ago with the appointment of a professional technology industry CEO. Before that, there were signs that the mayhem had already eroded a valuation that can only be assessed approximately from funding rounds. 16 of these had projected a market value of as much as $69bn. The most recent large funding, reported last week, was from the Vision Fund, linked to Masayoshi Son-controlled Soft Bank. We understand the funding will comprise $1bn for stock bought from the group itself in line with the current valuation and the rest from existing shareholders at a 30% discount, totalling $10bn. That implies a discount on aggregate relative to recent assessments, though the implied value would remain huge. That suggests Softbank’s fund, focusing on everything tech and telecoms, continues to see world-leading utility in Uber and all its related vehicles and interests including, AI, autonomous vehicles and computational biology, regardless of the group’s racy reputation.

London can’t be ignored

Now this doesn’t mean Uber or its investors can afford to be blasé about the need for authorisation to operate in any major city, even if that’s the attitude conveyed until recently, after regulators shut it out of busy markets like Denmark, Hungary and dozens of others. London is at the heart of a UK vehicle for hire market with taxicab revenues forecast to account for £9.4bn in 2017, according to researcher IBISWorld. The reputational hit from the license rejection and what that means to a potential customer base already showing signs of moral divisions about the group is more difficult to quantify. Even so, we don’t expect the rejection of Uber’s license renewal—which is subject to an appeal within 21 days—to 1. discourage the group from moving forward with plans to become a listed company or 2. play much part in its valuation when the group comes to market.

Better late?

In some ways, the London regulator’s move is quite late. Some consumers, unions and the established private vehicle hire industry may be vehemently opposed to the ride-hailing to meals-delivery group, but that the edge has come off that opposition over the years. With the recent appointment of an experienced CEO, former Expedia boss Dara Khosrowshahi, with gravitas and a reputation for a sure hand, Uber’s spikier edges can be expected to be smoothed further. We suspect it will take longer than 21 days to convince Transport for London that Uber is once again fit and proper enough to hold a private vehicle hire license, given the seriousness of lapses and even wrongdoing by the group. However, these were the very issues that investors clamoured over the last year or so to be fixed. The beginnings of that fix resulted in the ousting of Uber’s controversial CEO Travis Kalanick, earlier in the year. Kalanick’s departure was significant. There are signs that it came as a shock to the former boss and it certainly put remaining problematic elements of the group on notice that Uber was serious about cleaning itself up.

They’ll be back

We therefore think that the momentum of Uber’s rehabilitation will not abate. As for its license in London, assuming rejection of an appeal, rules normally dictate a period of disqualification of more than 56 days, at the regulator’s discretion, for offences not involving liability for drivers’ endorsements, which is the case with Uber. My understanding is that group would then be able to reapply for a license a year after revocation on 30th September. Assuming a smooth application process, the group could be free to operate on the streets of London by next November. Obviously in the meantime, that means a loss of livelihood for Uber drivers and large revenue losses and disruption for the group. The damage to its British operations will be considerable. But we think it will be back. TfL will have made a necessary, though expensive point, and Uber will have learned a painful lesson, which it nevertheless survives.

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