With all the news around regulatory changes in the UAE affecting car-hailing apps Uber and Careem, we though to take a look at the numbers behind our regional champion.

When Careem started in 2012 we thought the “winner takes all” endgame determined by the likes of Uber would cap the startup’s prospects for material growth; we’ve been wrong so far.

Fast-forward to 2016 and see Careem has been growing its user base at a break-neck 25-30% month on month. We note however that we lack definition of what classifies an active user. In a worst case scenario we could assume this to be sign-ups – still impressive.

Careem Active Users Q1 2016

At the end of Q1 2016, Careem had around 394,000 active users across the UAE, Egypt, Bahrain, Kuwait, Morocco, Pakistan, Lebanon, Jordan and Saudi Arabia.

Careem Active Drivers Q1 2016

Furthermore, driver sign-ups continue, growing by 50% in Q1 to reach 18,000. A blog post by co-founder Mudassir Sheikha, claims that users and driver numbers exceed those of Uber for the same regions by 30-40%.

Abu Dhabi’s recent suspension of car-hailing apps Uber and Careem illustrates the ongoing disruption that these service-marketplaces bring to old economy establishment. Though no official explanation has been given, the state-owned taxi services must be feeling the impact.

 

Funding

On the funding side:

  1. Careem raised a $1.7mn Series A in 2013 which included Saudi’s STC Ventures.
  2. This was followed by a $10mn Series B in December 2014, which included an investment of $4.6mn from Al Tayyar Travel Group (Al Tayyar) for an 18% stake.
  3. Careem closed its Series C funding in late 2015, taking in a total of $60mn from some deeper-pocketed investors such as Abraaj Group and Impulse, a subsidiary of NTEC, a VC entity owned by the Kuwait Investment Authority.

Al Tayyar’s involvement is interesting as it happens to be a public company listed on Saudi’s Tadawul exchange. Al Tayyar’s annual and quarterly financials statements list Careem Inc as a BVI entity under their Investments in Associates. They also mention that a board member of Al Tayyar is also personally invested in Careem (potential need for conflict management/resolution here). 

Al Tayyar use the “equity method” to value their stake in Careem.

According to Wikipedia:

Equity method in accounting is the process of treating equity investments, in associate companies. The investor keeps such equities as an asset. The investor’s proportional share of the associate company’s net income increases the investment (and a net loss decreases the investment), and proportional payments of dividends decrease it. In the investor’s income statement, the proportional share of the investor’s net income or net loss is reported as a single-line item.

Equity accounting is usually applied where the entity holds 20–50% of voting stock, since this implies significant influence on the decisions of the associate by the holding company. Equity accounting may also be appropriate where the holding falls outside this range and may be inappropriate for some entities within this range depending on the nature of the actual relationship between the investor and investee. The ownership of more than 50% of voting stock creates a subsidiary. Its financial statements consolidate into the parent’s. The ownership of less than 20% creates an investment position carried at historic book or fair market value (if available for sale or held for trading) in the investor’s balance sheet.

 

Burn

We’ve tabulated data from the 2014 to 2016 financial statements to show how the investment has been accounted for (open the below image in a new window for a full-sized view).

Careem Stake Evolution

Now we know that prior to December 2015 Al Tayyar only had an 18% stake, implying they may have carried their investment at book value as per the rules above. This may be true, as only March 2015 show’s a revaluation. In December 2015 the capital increase sees Al Tayyar invest a further SAR 80,024,635 (USD 21.6mn) into Careem taking their stake to the 20% threshold that triggers the equity method. For 2016 so far, we’ve seen quarterly revisions to the Careem valuation.

So what does this tell us?

  1. We can divide Careem’s quarterly valuation losses by the 18% and 20% stakes that Al Tayyar owns to give us Careem’s total Net Income/Loss for the period.
  2. In 2015 we calculate Careem lost on average USD 3,160,000 per quarter
  3. In Q1 2016 this increased to USD 4,740,000
  4. In Q2 2016  it increased to USD 5,885,000

Over 2015, the company burnt through 50% of its equity over the course of the year.  Adjusting for the capital increase in December 2015, if Careem continues at their current burn rate (approximately USD 5,885,000 per quarter), we expect them to burn through 50% again by late summer 2017. We therefore assume that a further capital raise is due sometime in early 2017 (since we penned this article the press has revealed plans to raise $500mn).

Nobody said growth was cheap.

 

Valuation & Ownership

Careem’s post-money valuation as of December 2015, can also be calculated. Dividing $23.74mn by 20% gives us $118.7mn. Seeing as Careem raised $60mn in their Series C, this implies that around 50% of the equity is now owned by Series C investors.

Earlier this summer we were somewhat disappointed to see Saudi Arabia’s Public Investment Fund (PIF) invest $3.5bn into Uber. Had they taken just 2% of that an invested in Careem that would have added $75mn to Careem’s capital raise. PIF could have given a regional challenger (with a strong Saudi footprint) a greater chance to compete.

Perhaps more importantly, they could have helped create another inspirational story for entrepreneurs across MENA.

We expect Al Tayyar’s Q3 financial statements to be posted sometime in November, when we’ll be able to update our numbers again.