Uber's latest $500 million stake sale in its freight business is a sign toward the future as it grapples with plunging ridehailing revenue hampered by the pandemic.

The company sold the stake in Uber Freight to private equity firm Greenbriar Equity, valuing the unit at $3.3 billion. The growth equity investment is the first round of outside capital for the three-year-old business, which operates a platform to connect truck drivers and freight shippers.

Greenbriar's investment will aid Uber's goal of building the infrastructure needed to become a national end-to-end logistics network. The company has been integrating the freight business with Uber Direct, a last-mile delivery service that launched this year.

The deal also helps to secure Uber Freight's future, which had become uncertain after the pandemic devastated Uber's core ridesharing business, said PitchBook emerging tech analyst Asad Hussain.

Uber Freight has gained momentum recently, signing API integration partnerships with cloud providers like SAP and Oracle. It has also expanded its logistics software offering.

The freight unit generated $211 million in revenue in the second quarter, up 27% year-over-year, while ridehailing has seen a steep sales decline. Revenue for that unit was down 64% in the second quarter.

The success of Uber's food delivery and freight business relative to ridehailing underscores the advantage of diversification for the company, said Ali Mogharabi, a senior equity analyst at Morningstar. "The more Uber can lessen its dependency on ridesharing, the better the business is," he added.

Mogharabi said Uber's ridehailing business is unlikely to return to 2019 levels until 2023, owing to the impact of the pandemic. Meanwhile, he expects a compound annual growth rate of 25% for last-mile delivery and 21% for the freight business over the next decade.

The freight business has yet to be profitable for Uber, and ridehailing continues to be its core money-making unit. But that unit's profit dropped 90% in the second quarter from a year ago.

Uber reportedly laid off 6,700 employees in May and said it would focus on its core operations. Last month, the company sold its European freight business to Berlin-based logistics startup Sennder. The all-stock deal reportedly valued the unit at less than 900 million euros (about $1.1 billion). Uber also took a minority stake in Sennder.

Yet Uber decided to hold on to its North American freight business because it reportedly performed better than expected this year.

Uber is also dealing with an ongoing fight over a California law that reclassifies contract workers as employees. Uber is backing Proposition 22, a California ballot measure in the November election that could determine whether the company can avoid the cost of converting contractors to employees.

Moving forward, the ridehailing giant will have to contend with continued losses from Postmates, the food delivery company it acquired for $2.65 billion in stock in July. Although the pandemic-induced growth in home delivery helped to cut Postmates' losses by more than half this year, the company still lost $32 million in the second quarter.

Following the Uber Freight investment, Uber will retain control of the company, and Greenbriar managing partners Michael Weiss and Jill Raker will join Uber Freight's board of directors. Greenbriar is known for buyout deals with a focus on logistics and aerospace companies. It was an early investor in Virgin America.

Featured image courtesy of Uber

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