After selling its China business to a domestic rival – Didi Chuxing, Uber has virtually bowed out of the world’s second-largest economy.

Bringing an end to the brutal battle in China between the two apps, the combined new company is worth $35 billion, said sources who were familiar with the situation told media.

Analysts have cited clear reasons why it happened even as investors and analysts have had a mixed reaction to the news.

Uber has been troubled by cash burning by its China business. Sources predicted that the that company had spent $2 billion in two years trying to battle Didi and the start-up was losing $1 billion a year in China, Uber chief executive Travis Kalanick had said earlier this year.

A fact that Kalanick acknowledged in a blog post circulating around Chinese social media, this strategy was an unsustainable way to run the China operation.

“Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term,” Kalanick said.

For Uber it since Didi which claimed to have a nearly 80 percent market share, was gaining on Uber.

Secondly, removing the cash-sucking China business could make the company more palatable to investors if an when Uber decides to go public, say analysts, even though Kalanick has been very vocal that Uber is not looking to go public anytime soon.

Uber can now focus on the hundreds of other regions it operates in where it is also facing challenges since it now does not have to waste energy on its China business. This is another reason why this deal is good for the company. For example, while in the U.S., the company is in constant debate over whether its drivers are classed as employees or contractors, Uber has run into trouble with regulators in Europe.

Another potential big growth market for Uber is India and it would now be possible for the company to devote more resource to its business there. As in China, Uber has a strong domestic rival in Ola in India.

“India is the single biggest un-won opportunity, there it is a much more level playing field than in China,” Rob Kniaz, partner at London-based venture capital firm Hoxton Ventures, told CNBC.

Kniaz added that it’s less likely to invest in competitors to Uber around the world since now that Didi owns Uber China.

Other products such as UberEats, the food delivery business, could now get more focus from the company. The company is planning to invest $500 million into building its own mapping system, a report in the Financial Times said.

According to analysts’ estimates, a small stake in Uber’s global business which is worth around $62.5 billion has been taken up by Didi as part of the deal. Hence exposure to Uber’s customer base outside of China could now be potentially available to Didi.

With the aim that its Chinese customers visiting America could use Lyft’s services, earlier this year, Didi partnered with U.S. ride-hailing app and Uber rival Lyft.

“Didi Chuxing will also continue to expand its international strategy. We look forward to working with our partners at home and abroad to create more value for drivers, passengers and communities,” Jean Liu, president of Didi Chuxing said in a statement on Monday.

(Adapted from CNBC)

Categories: Strategy