Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Investors in Uber and Expedia seem to think a merger of the two, talks over which were reported by the Financial Times this week, is unlikely for now. Yet there is much to recommend a combination. Each aims to get customers from A to B. Teaming up could get them further — if only to C.
A tie-up would be a family reunion of sorts. Dara Khosrowshahi, hired to be Uber’s presiding adult in 2017 after co-founder Travis Kalanick resigned, previously ran the $20bn travel website. Expedia’s chair and largest individual shareholder Barry Diller is his mentor. The melding of cultures — often a source of friction — might be almost harmonious.
Uber at a market value of $170bn can afford to take the risk. Imagine Khosrowshahi offered about $26bn to clinch a deal. He would only have to increase Expedia’s forecast free cash flow for 2026 by $1.6bn — little more than 10 per cent of the two companies’ combined sales and marketing expenses — to make a handsome 15 per cent return on investment, based on LSEG estimates.
Such numbers, though, are a dull reason to do a deal — at least in tech, where executives have an incentive to go big or go home. No fewer than 48 analysts rate Uber shares a “buy” even after its shares nearly doubled in a year. Amid such exuberance, buying an online travel agent whose revenue is growing at half Uber’s own 16 per cent rate seems positively mundane.
More enticing is the idea of creating a “super app” — a melange of services that dominates users’ brain space and wallets. The gold standard for this remains China’s WeChat, which combines messaging, payments, fitness tracking and millions of third-party “mini programs”. The west does not have such a thing. Facebook owner Meta and Google parent Alphabet have mostly kept their various services separate.
That has not stopped tech bosses from dreaming. Facebook co-founder Mark Zuckerberg and X owner Elon Musk have both talked about creating everything apps. PayPal toyed with buying digital mood-board site Pinterest, combining finance with social media. Khosrowshahi has said Uber could be the “operating system for your everyday life”. Buying Expedia would take him a little closer in that direction.
Or he could stay in his lane. Uber has mostly focused on short trips, and there is much more to do there, especially as driverless vehicles inch closer to the mainstream. Half of Uber users hail only one or two rides a month, and only a small slice of American adults use its rideshares at all. Khosrowshahi has shown himself to be a smooth operator. Get those numbers up, and Uber can be great without having to being super.
Read the full article here