Why Investors Should Care About Uber Eats Sale In India

Uber Technologies Inc UBER is reportedly in talks to sell its food delivery business in India and a potential M&A deal is "particularly important" to the company, according to Morgan Stanley.

The Analyst

Morgan Stanley analyst Brian Nowak maintains an Overweight rating on Uber with a $55 price target. The company was also named a "top 2020 pick."

The Thesis

Investors should care what Uber does with its Indian food delivery business for three reasons, Nowak wrote in a note. First, the asset sale would be consistent with management's pledge to exit (or create a partnership) markets where it can't hold a number one or two position within 12 to 18 months.

Second, Uber Eats India is likely a drag on the entire company and contributed $300 million to $400 million of annual EBITDA losses.

Third, Uber could still have exposure to India through a minority investment in one of the leading food delivery companies, the analyst wrote. In fact, the right investment can generate "significant value creation" as its minority stakes elsewhere are valued at $6 per share.

U.S. Competitors

Rival food delivery company Postmates attempted twice to list itself on a public market which suggests an urgent need to raise capital, the analyst wrote. The failures likely implies it will need to scale back its discounting or pull out of certain markets.

DoorDash has raised an estimated $2 billion to date but it is reportedly on pace to lose $450 million of EBITDA in 2019, the analyst wrote. The company may need to become more rational within the next 12 to 18 months

UBER Price Action

Shares of Uber were trading lower by 1% Tuesday at $29.74.

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