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London Is the Biggest Test of the New, Grown up Uber Strategy

Uber strategy - London Is the Biggest Test of the New, Grown up Uber Strategy

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Uber is back in business in London. The ride-sharing app had its license pulled back in September by the city’s transportation regulator, Transport for London. In its decision, TfL cited questions about Uber’s hiring practices and poor reporting of potential criminal offenses. But there’s a chance that a new Uber strategy could mark the company’s return to prominence.

But after a court hearing this week, Uber has been reinstated in the city, for now. The company received its license only for 15 months, with London’s own mayor Sadiq Khan using the Twitter Inc (NYSE:TWTR) platform to emphasize that “Uber has been put on probation.”

With Uber saying it is preparing for an IPO in 2019, London represents a big test for the company. Its success in that key market will test both its strategy and its execution.

The Uber Strategy

The Uber strategy has been based on the idea that “it’s better to beg for forgiveness than to ask for permission.” The ride-hailing app essentially has ignored regulators in most of its key markets.

And it’s been a successful strategy. In New York, for instance, a bid to regulate Uber and rival Lyft fell flat in 2015. As a result, Uber has been able to undercut the yellow cab business (as seen in the tumbling valuation of lender Medallion Financial Corp (NASDAQ:MFIN)).

Similar stories have played out in other markets. By the time regulators react, Uber’s reach among consumers has become broad enough to fight off any cumbersome new rules.

But already, the strategy has hit some roadblocks. Uber has exited Southeast Asian markets (where penalties perhaps are more severe). It partnered out its operations in Russia and neighboring countries with Yandex NV (NASDAQ:YNDX).

With a valuation of $48 billion after its recent stake sale to Softbank Corp/ADR (OTCMKTS:SFTBY), Uber needs more than just U.S. markets. And if it runs into more trouble in London, that could significantly impact demand for next year’s IPO.

Can Execution Improve?

The other key question for Uber in London is whether Uber can act like a “grown up” company. The reason founder Travis Kalanick was forced out, and replaced by Dara Khosrowshahi is because the company needed to mature. At this point, any Uber strategy needs to focus on execution, in order to fend off competition from Lyft and start making profits.

Uber has an opportunity in London to prove that it can behave once regulators turn their sights on the company. It needs a proper system to record driver and user complaints.

It will have to operate its business model despite restrictions on how many hours drivers can work. The strategy of looking the other way, or outright ignoring local regulations, isn’t going to work forever. The company needs to become a model corporate citizen. London will test its abilities on that front.

If that doesn’t happen, demand for the IPO could change materially. Uber needs London – one of its key markets anywhere, and particularly outside the U.S. The self-driving car fatality in Arizona has impacted its autonomous driving efforts, and potentially given a head start to Alphabet Inc (NASDAQ:GOOGL,GOOG) unit Waymo. US growth is going to slow at some point.

In that context, losing London – again – could be a significant problem for Uber. And so investors no doubt will be watching closely to make sure the company gets it right this time.

As of this writing, Vince Martin has no positions in any securities mentioned.

Article printed from InvestorPlace Media, https://investorplace.com/2018/07/london-test-uber-strategy/.

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