Careem’s $400M deal signals Middle East telecoms becoming go-to tech investors
Al-Monitor Pro Members
Senior Market Research Analyst, Al-Monitor
May 1, 2023
No longer just the regional ride-hailing upstart that challenged Uber, Dubai’s Careem is now morphing into a super app offering numerous services. Various investors powered that journey, but one type in particular stands out: telecoms. Saudi telecom giant STC backed Careem in earlier days and now the UAE’s e& (formerly known as Etisalat) is injecting $400 million into the company. The landmark deal positions Careem as the region’s leading “everything app” amid rising competition, but it’s also a sign of the times for e& — the regional telecom behemoth seeks to reinvent itself as a global tech and investment group, a strategy seeing it snap up local startups and tech assets. The Careem deal is just the latest and largest, and signals that the Middle East’s leading telecoms will be increasingly active regional tech investors as they attempt to capture growth from digital services.
- Prior to snagging e&’s investment in April 2023, Careem began expanding outside its core ride hailing business to become a super app, a shift starting shortly after Uber acquired it for $3.1 billion in 2019. That saw Careem add over a dozen new services to its platform in the UAE, from digital payments to home cleaning.
- Yet, by 2022 Careem was seeking $500 million from Abu Dhabi and Saudi funds to finance its super app expansion, Bloomberg reported, which came as Uber was divesting non-core assets and tech firms globally were struggling to raise funding.
- Roughly a year later, e& acquired a 50.03% stake in Careem Super App, a spin out from its ride-hailing business (which remains owned by Uber). The deal will be financed from e&'s existing cash balance and is still subject to regulatory approvals and so forth, the telecom said in a filing.
- It wasn’t the first time Careem tapped a regional telecom for significant funds: the region’s largest telecom, Saudi’s STC, directly invested $100 million into its $350 million series D round in 2016.
- Careem’s new investment from e& is intended to support its super app expansion across the Middle East. Beyond the actual funds, the transaction presents other growth opportunities, thanks to e&’s 163 million subscribers across 16 countries, alongside its regulatory relationships and other factors.
- e& sees the investment as aligned with its larger strategic ambitions, which include scaling up digital offerings for consumers. The majority-state owned telecom — which rebranded as “e&” in 2022 — aims to position itself as a global technology and investment group.
- Those strategic ambitions have produced more tech deals in recent months. In February 2023, e& completed the acquisition of Dubai’s ServiceMarket, an online marketplace for household services. That came after a consortium led by e& acquired a majority equity stake in regional streaming platform Starzplay Arabia in March 2022, which followed the acquisition of Dubai-based grocery delivery platform elGrocer.
- In October 2022, e& also unveiled a new $250 million venture capital fund, which has already led a $20 million series B round into the immersive social app VUZ.
- That said, the group’s strategy also focuses on expanding global telecom assets. Over the past year it has invested billions to amass a 14.6 % stake in the UK’s Vodafone Group.
- e&’s Group CEO Hatem Dowidar told Bloomberg in March 2023 that the group is in a growth phase and has the “capacity and the wallet” to invest this year. That includes looking at opportunities in Europe, Asia and Africa to propel itself into a global technology company.
- This comes as other leading Gulf telecoms are also making moves amid heated competition for market share and threats from new technologies. According to telecom industry group GSMA, the pandemic served as a catalyst for diversification by accelerating the shift to digital for consumers and enterprises in MENA and fueling growth beyond core services, with demand in areas like cloud, finance and security.
- Crucially, Saudi Arabia’s STC also continues targeting tech and startups. In October 2022, it committed an additional $300 million to Saudi venture capital firm STV, which launched in 2018 with an initial $500 million in funding (also provided by STC).
- One of STV’s first investments was participating in Careem's $200 million series F in late 2018. Some other notable portfolio companies include fintech darling Tabby and restaurant software company Foodics.
- Going back further, the Saudi telecom also launched STC Ventures. Its last known investment came in 2019, but it’s notable for being among Careem’s earliest backers, leading its $1.7 million seed round in 2013.
- That said, STC is also targeting other tech ventures and telecom deals too. One of its units expanded in Europe in April 2023 after agreeing to buy tower infrastructure from United Group, a deal worth $1.34 billion.
- Elsewhere, earlier this year STC also launched a voice and video calling application called Beem in collaboration with an app development company, while in 2022 it teamed up with China’s Alibaba Group to establish a cloud computing venture with an investment of $238 million.
- Over in Kuwait, Zain has also been making moves around digital services, cloud computing and startups. That included launching a VC arm in 2021, which quickly invested into Dubai transport startup Swvl and US fintech company Pipe, both notable players. However, it hasn’t produced any known deals since then.
- However, e&’s Careem investment has upped the stakes and emerges as competition among super apps is rising regionally. This business model has potential to dominate digital services and help drive financial inclusion in MENA, according to a 2021 study by Economist Impact, with the prevalence of low-end mobile phones and high internet costs making super apps attractive.
- Investors have noticed. Case in point: Egypt’s MNT-Halan, which offers numerous financial products alongside e-commerce options, announced $400 million in new funding in February 2023 at a $1 billion valuation.
- Yet, that investment arrived as MENA’s venture capital ecosystem overall experienced a sluggish start in 2023, according to Dubai data firm Magnitt, with funding declining by 13% in Q1 year-over-year and deals plummeting by 55%.
Scenario 1: Other MENA telecoms champion super apps to rival Careem
Not wanting to be left behind, industry players move quickly to acquire or take stakes in other regional super apps as they seek to diversify revenues streams and capture growth from digital services.
Yet, topping e&’s bold bet is unlikely — in part because Careem is one of MENA’s most established tech brands. Other telecoms will likely explore the super app opportunity, but it may not come via an investment approaching half a billion dollars.
Scenario 2: Gulf telecoms focus on global opportunities, less on regional tech
Drawn by attractive valuations, leading regional telecoms increasingly target tech investments and telecom assets abroad amid a depressed global deal market, while focusing less on landmark regional deals, making Careem's investment an outlier.
That said, it’s likely Gulf operators will continue pursuing global opportunities while simultaneously continuing to snap up local tech assets, even if those don’t prove splashy.
Gulf telecoms continue actively funding and acquiring regional tech companies in 2023 as they look to further integrate emerging technology into their offerings and unlock new revenues streams. That makes them key sources of regional capital in coming months, especially as other funding may become scarcer amid broader economic uncertainty. Meanwhile, a player like STC could easily begin developing its own super app and devote significant funds towards this goal, but that may come through amassing services and launching its own platform rather than buying an existing super app. Notably, Saudi Arabia doesn’t yet have a well-funded super app, unlike the UAE and Egypt — but that could soon change.
Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.
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