By Quentin Webb
HONG KONG (Reuters Breakingviews) - Artificial intelligence is the backseat driver of SoftBank’s move on Uber. Masayoshi Son’s tech and telecoms group is close to investing $10 billion in the U.S. ride-hailing giant, the Wall Street Journal says. That reflects the Japanese maverick’s belief in the disruptive power of self-driving cars.
On the face of it, taxi apps sound less exciting than other technologies praised by Son, such as robotics or computational biology. But Son believes autonomous cars will reshape transport. Hence a recent $5 billion investment in China’s Didi Chuxing, plus stakes in India’s Ola, Singapore’s Grab and Brazil’s 99.
The outlay would be enormous - but Son needs megadeals to feed his $93 billion-plus Vision Fund. And Uber’s recent disarray may have convinced him he can haggle over the price. SoftBank might buy $1 billion of stock from Uber itself, in line with its last $68 billion valuation, and the rest from existing shareholders at a 30 percent-plus discount, the WSJ says. But that still places a high valuation on Uber, testifying to Son’s optimism.
In the best-case scenario, the market expands as private car ownership shrinks. Uber could have major market power in buying fleets of vehicles, and in setting prices for riders, while steering around the cost of human drivers. Son could also help damp competition between his fleet of investees, and push for consolidation. Or Uber could simply entrench itself as a valuable platform for hiring cabs, ordering takeaway, making payments, and other services, even if autonomous cars are slow to arrive.
All that said, this would still be very bold. Uber remains heavily loss-making, despite its global brand heft, and it is not yet obvious how much demand would remain after unsustainable subsidies are removed.
A lot must go right to turn this into a blockbuster deal. Say the overall in-price equates to a $50 billion valuation. Making a 44 percent annualised “internal rate of return”, in line with SoftBank’s previous hits, would require Uber to be worth $310 billion in five years. That will require more than a tune-up by new Uber boss Dara Khosrowshahi.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.