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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."
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.
"Amazon's initial business plan was unusual; it did not expect to make a profit for four to five years. This "slow" growth caused stockholders to complain about the company not reaching profitability fast enough to justify investing in, or to even survive in the long-term. ... It finally turned its first profit in the fourth quarter of 2001: $5 million"
Seven years it took to hit profit, but they knew that and said it would be like that all along.
I suspect that Amazon's turnover and revenue were significantly higher than anything Uber's ever seen, and I suspect they never lost $1.2bn at any stage of their inception.
It was also - as stated - highly unusual.
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
get rid of the drivers and their cars and move to their own self driven vehicles
This is the thing that a lot of people quote as being the thing that will help Uber turn the corner but if anything it'll make turning a profit that much more difficult. As it currently stands Uber is deferring a lot of business costs to drivers. Things like equipment, insurance, fuel, repair, and so on. When they have their own fleet of self driving cars, they take on all of those things that they haven't been paying for. Not only that, depending on the regulation a state/city might have for self driving cars, there might be a very high cost associated with self driving taxis. Yes, Philadelphia is all too happy to jump on, but that's because of the novelty. Years from now when it goes mundane, I'm pretty sure governments will be less affable to companies wanting to have a lot of self driving autos crowding their streets wearing down their roads. Switching over to self driving isn't going to be this panacea that allows them to go crazy insane profitable, there's a lot of costs involved and Uber will have to switch (or pivot since that's the fun word this season) from being just a purely service based company to a more complex company altogether. Pair with that, the ever evolving attitude of governments that will ultimately wane as time marches on, with ever increasing expectations from locals. If they don't have that mental change happen early in the game as they go self driving, they won't last long. I've seen tons of companies try automation and them not fully understanding what they're getting into is a killer (worst case)/hindrance (best case) for most of them.
I'll add this, what Uber wants to do is of a scale that I've never dealt with personally, so something this large might have totally different challenges and I'm just talking out my butt. So that said, take all the above with grains of salt. But I do think that those are rationale challenges that they're going to run into down the road which will prevent them from being insta-profitable the second a robot hits the street.
...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.
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...