Slashdot Mirror
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."
How is this a related link "10 Confirmed Dead In Shooting at Oregon's Umpqua Community College" to every article I look at, even this one?
"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.
As the summary notes, breaking into an existing entrenched market is extremely expensive.
Especially when you're trying to upset the status quo.
We'll see if Uber is still around in 5 years.
They are a taxi company. Offering prices lower than the market rate. So of course they are losing tons of money.
Their goal is to roll out self-driving taxis before they go bankrupt. If they succeed in being the first company with self-driving taxis, they will become incredibly successful. Because of this possibility, they have attracted a huge amount of investment. This allows them to lose lots of money for a long time without going bankrupt.
In the short term, customers are winners from Uber's lower prices (disregarding legal/ethical issues, which are real, but tangential to my description of the business model).
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
How can a taxi company with literally no expenses except for keeping a few servers running run a loss in the billions?
Uber spends far more money on marketing and ride subsidies than on running their servers. They undercut taxi companies by simply losing money on each ride in many markets. The claim is their costs would go down once economy of scale raises, but there is also a good chance prices would go up significantly if they ever win their battle with taxi companies.
-- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
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...
Uber drivers aren't getting ripped off. Those who pay their taxes and licenses are. The governments not getting their taxes are.
The same rules should apply to all taxi services, Uber included.
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.
Okay, but what exactly is Uber spending $1.2B on?
Strippers, hookers, and blow. Drugs and sex are the fastest way to burn money from what I have seen.
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...
Uber has actually made money in certain financial quarters. Webvan and Pets.com didn't. Uber rates can go up and people will still use them: what is the alternative?
Back in my day, we called them taxis.
...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.
Uber CEO Travis Kalanick is worth over $6 billion. The loss belongs strictly to the investors. The company's doing fine, otherwise.
This is why Uber is not a public company. It's a money laundering operation.
http://www.cnbc.com/2016/03/28...
http://investorplace.com/ipo-p...
You are welcome on my lawn.
Don't forget that they're also screwing the city by putting lots of wear and tear on the streets without generally paying any commercial fees/taxes that would otherwise go to offset that damage - street infrastructure is stupid-expensive and they're basically using it for free (individual car fees are generally much lower on the expectation that you're not spending all day driving around downtown).
You're special forces then? That's great! I just love your olympics!
Free rides and lobbying local govs. I think they blew 10 mil on a failed prop in austin. They left. And as I told friends, they'll be back after a few months begging to come back. I hear they did a meet and greet with council last week. Maybe they will do the fingerprint check (along with all the other requirements the city has for ride shares) after all even though when the prop was being pushed, they said they could not possibly do that. Their other big cost in an effort to push out cab companies is to give free or heavily discounted fares. There were stories about phantom passengers in china because uber was giving free rides. So inventive drivers created fake passengers to drive around. Driver got paid by uber for the fake trip.
offer 20$ of rides free as introduction offer, undercut taxis by subsidizing rides
Does this mean, eventually, uber fares == taxi fares, when the subsidizing stops?
No, they'll be far more expensive if everything stays the same. Taxi drivers make very little and most taxi companies are run on shoestring margins (sometimes for a lot of money because of volume, but still very low margins), and they're selling a far lower quality product in most markets.
You're special forces then? That's great! I just love your olympics!
EBITDA is commonly used as a proxy for operating profit in the VC community.
Depreciation & amortization aren't going to be hugely relevant for Uber (unlike the companies Buffett tends to invest in), and in the context of startups where capital expenditures relate to growth not replacement, and are going to be sourced from further investment rather than retained earnings, these noncash expenses just clutter the laser focus on operating profits, which are the overriding interest... the first thing you want to know is "when are they going to stop burning cash", not "how long will it take them to recoup the investment on their IT infrastructure"
Interest expense gets taken out because it reflects corporate finance decisions, not operating results. The business isn't doing better or worse because a company relied more or less on debt financing vs. equity, or had to pay a higher or lower interest rate. It's not like anybody's ignoring the debt, it's just that people whose business is to change the capital structure prefer to value the entire enterprise in a capital structure agnostic manner, then deduct the full value of debt to get what's left over for equity... a balance sheet approach, rather than GAAP's approach of anointing net earnings on the income statement as the One True Number that we need to slap a multiple on.
EBITDA is not a finishing point in evaluating & valuing companies, it's just the point along the way that's of the keenest interest.
Strippers, hookers, and blow. Drugs and sex are the fastest way to burn money from what I have seen.
Don't have children, do you...