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Uber Loses At Least $1.2 Billion In First Half of 2016 (bloomberg.com)
An anonymous reader writes: The ride-hailing giant Uber Technologies Inc. is not a public company, but every three months, dozens of shareholders get on a conference call to hear the latest details on its business performance from its head of finance, Gautam Gupta. On Friday, Gupta told investors that Uber's losses mounted in the second quarter. Even in the U.S., where Uber had turned a profit during its first quarter, the company was once again losing money. In the first quarter of this year, Uber lost about $520 million before interest, taxes, depreciation and amortization, according to people familiar with the matter. In the second quarter the losses significantly exceeded $750 million, including a roughly $100 million shortfall in the U.S., those people said. That means Uber's losses in the first half of 2016 totalled at least $1.27 billion. "It's hardly rare for companies to lose large sums of money as they try to build significant markets and battle for market share," said Joe Grundfest, professor of law and business at Stanford. "The interesting challenge is for them to turn the corner to become profitable, cash-flow-positive entities."
"It's hardly rare for companies to lose large sums of money as they try to build significant markets and battle for market share,"
How long did Amazon lose money? Uber's just collecting data until they can get rid of the drivers and their cars and move to their own self driven vehicles using the infrastructure they're building now.
They are in a market where the bar is so low that anyone with a car and access to craigslist can set themselves up as a ride-hailing business. Apparently you don't need commercial license, vehicle inspections, or liability insurance. They are nothing but a 99 cent app and a marketing department - no special sauce.
Webvan was great. So was Pets.com. So is Uber.
Unfortunately, none of those companies had/have a chance without investor money to subsidize their services. Once forced to actually pay their costs, they will have no choice but to raise their rates or go out of business. With Webvan and Pets.com, customers left when the rates went up. Same will happen with Uber.
That said, I'm happy to spend investor's money to save a buck. Use it while it's there!
-Chris
Others have compared Uber to Amazon, but Amazon had real, huge cost drivers: They needed stocks, warehouses and logistics. Even so, and even given their aggressive growth, they never lost this much money - I think the record was around $1 billion in one year. Uber is purely a service, with essentially no capital costs and no logistical infrastructure. They are an app and a money conduit. How can they lose $1.2 billion in six months?!
They attribute the losses to subsidizing drivers, i.e., paying drivers more than the passengers are charged. I can see that on a local scale, over the short-term, as they attempt to gain a foothold in a new market. To do so on this massive of a scale? Insane!
Of course, another aspect is salaries. Why does Uber need 7000 employees? They need a technical team, they need marketing droids and lawyers. But...7000 of them?
Something here does not compute...
There is no brand loyalty.
Don't underestimate the network effect.
People use Uber because there are drivers. Drivers are on Uber because that's what people use.
Marketing. They have 6,700 employees all over the world. They have offices all over the world to handle accounting/marketing/support. That costs money. I know Slashdotters think they can whip up a few shell scripts and call it a business, but the real world doesn't work that way.
1) Driverless cars are NOT GOING TO HAPPEN.
I expect they will happen, but not as quickly as most people are predicting.
Just cruising through this digital world at 33 1/3 rpm...
...So is Uber...
Uber isn't great. It's s scam that is allowed to persist simply because there are no laws against running this type of scam.
It's basically a Kansas City Shuffle. The key to a Kansas City Shuffle is getting the mark to think that they're part of the scam. Uber has done a masterful job in convincing marks (the drivers) that they're in on a sure thing. I'm sure you've seen the advertisements: "Make $20/hr just driving you're car!". "Stick it to the taxis while making buku bucks!". "Set your own hours!". You aren't an "employee", you're a "partner".
In reality though, you're neither. Your a mark. They rely on the fact that most people won't bother to dig beneath the surface of the scam. Eventually though, reality comes crashing in on the "driving dream" and the marks realize just how much they're being screwed over. They stop driving for Uber, but Uber doesn't care because they already have their cut and have thousands of other ignorant/naive marks lined up to continue the churn and burn cycle.
Start with $20/hr nonsense. Let's say you hustle, do 3 rides, and live in the right area and you manage to get $20/hr in fares. But you don't get $20. Uber takes 30% right off the top (if you're a new driver).
But we're just getting started. There's an additional "booking fee" that Uber takes as well. That can be anywhere from $1.50 to $2.50 PER RIDE. You did 3 rides, and let's use $2 as an average. So from $20, you're down to $8.
Well, that's not great but you could do worse, right? Well it does get worse. An average car is going to go through about a gallon a gas for that hour. Let's be generous and say that's another $2. Now you're down to $6. And then there's taxes, and again let's be generous and say that's another dollar gone. Now you're down to $5. Then there's wear/tear/maitenance costs of your vehicle which can drastically increase due to the increase usage (some of that can be offset by deductions). Let's say that's $.50/hour.
So out of $20 of fares, you're actually getting maybe a quarter of that in real dollars. And it's just going to get worse. Over the past couple of years, they've increased their take from 20% to 30%, while dropping driver rates 40% across the country. Once they do away with surges (and that's a when, not if) there won't be any real way to even make minimum wage.
And the cherry on top? Their lease and sub-prime lending programs are borderline criminal. I truly feel bad for anyone naive enough to get suckered into one of those. They're the ultimate marks.
Uber, and pretty much every other "gig" company out there (freelancer, rent-a-coder, etc) all operate on the same principles. Race to the bottom, and feed off the truly desperate. The sooner drivers realize it's a scam, the faster Uber will go up in flames.