Grandiose Plans
Uber wants to become the Amazon of everything transportation related. But a key question remains: Can Uber Ever Make a Profit?
In Uber’s vision of the future, most people won’t own cars. Riders will hop on electric bikes and scooters for short distances, and summon cars with drivers for longer rides. Takeout dinner will become a vestige, replaced by hand-delivered meals. Garages will empty and parking lots will be ripped up and transformed into grassy parks.
Eventually, robots will rule. Self-driving cars will shuttle people around the roads—and in the air—while drones will make the deliveries. Robotrucks will roam the highways. And Uber will be at the center of it all.
As Uber gets set to go public next Friday in one of the largest tech IPOs ever, Chief Executive Dara Khosrowshahi is trying to sell Wall Street on his vision that Uber will become the dominant force in all forms of transportation.
That mission is threatened by an onslaught of competition from all sides that has intensified in recent months and caused Uber’s loss to balloon to more than $3.7 billion in the 12 months through March—by far the largest loss ever for a U.S. startup in the year before an IPO, according to S&P Global Market Intelligence.
Uber vs Amazon
Amazon started making profits eight years in. Uber is bleeding money badly.
Uber Has to Continually Raise Money
There are no barriers to entry other than raising money. The competition is intense and competitors have learned from Uber’s mistakes.
Note the four food delivery competitors in the right panel in the lead chart. There are competitors in the scooter business as well.
Uber has a deal with McDonald’s. Uber used to get a 20% commission on deliveries. McDonald’s renegotiated the deal. Uber now gets a 15% commission.
Is that enough to make a profit? Year-to-date number provide a resounding no.
Uber Does Many Related Things, All Poorly
If Uber made money in one place it could afford to have cash drains elsewhere.
Compare Google to Uber. Google makes massive amounts of money off search engine advertising. It uses that free cash flow to fund many other endeavors, notable driverless car technology.
In contrast, Uber loses money at everything it does. It is also far behind Google (Waymo) in driverless technology.
Uber’s Survival
As long as Uber has the confidence of investors, it can survive by raising money. But if that confidence wanes before Uber makes enough to pay interest on accumulated debt, Uber is toast.
Right now, Uber is a zombie corporation, totally dependent on investors’ willingness to keep funding Uber’s cash needs.
Mike “Mish” Shedlock
I thought some of these might consolidate sooner, and solve the logistics problems they are creating. But people are getting incredibly rich just bringing it public. It’s like a contest to see who’s going to go bankrupt first.
Still, Uber is making a classical corporate mistake, they are nothing but a smart phone application running a cab service with employees who are close to operating at a loss themselves.
I guess my point being, where is the money going, it better be into some serious product development that will pay off.
Uber now has another reason to be a short below zero
link to voxday.blogspot.com
They wrote JAMS binding arbitration into their ToS – which means drivers only have to pay $250 – Uber has to pay EVERYTHING ELSE – $1500 is the filing fee, then Attorneys tend to be expensive. And they have to do the arbitration where the DRIVER lives (see the NY strikes, and across the country).
By foregoing the class action, they now have a bunch of individual actions that they won’t be able to settle with a card for $50 of Uber credit – it will cost them $1250 to start, then the Lawyer’s taxi meter turns on.
Any day now, we’ll be flying around with jet packs.
WeWork is another zombie. The IPO market is the market of last resort. These companies are going to implode spectacularly and force the Fed to act because of covenenant lite loans being securitized and resold into derivatives. Boom.
How close to being Zombies are Uber’s competitors? Uber and Lyft created the ride-sharing market and could charge higher commissions. If those commissions are not enough to survive, then falling commissions will hurt ALL ride-sharing companies. Early investors have the best chance at profiting, but more recent investors stand to lose.
The more they all lose, the better. There exists no more useless activity in all of our financialized dystopia, than mindless “investing” in things one has no more of an asymmetric edge in understanding, than did the five year planners “investing” in the Soviet Union.
Those who provided capital for Uber when there was no ride sharing, just 3 decades of attempts to bust the San Francisco Taxi monopoly, all of which failed; provided a useful function. Anyone after that, is just mindlessly adding to the cost of doing business for all involved. Like the deadweight leeches money printing in financialized dystopias encourage them to be.
As a Uber driver, 25% of Uber X and 28% Uber XL turnover have been taken away from Uber that even could not make company profitable? As the negotiation result between ubereates and MacDonald, 15% shall replace the 25%, would be better but still a distance from the level of satisfaction. A ladder decrease from 25%-8% based on income level would be more fair to the Uber driver, which sure be the basic requirements for the profitability of Uber management. Much slim property investment in comparison with Amazon, why Amazon could make profit but Uber doesn’t? Problem comes from the management not business style. Suspend list Uber may save the investors money.
Uber drivers are paid more than they are worth. Otherwise there would not be millions of new uber drivers. Uber could be profitable by cutting fares in half and cutting driver pay in half.
The cost of personal transportation is $1/day insurance, maintenance, and taxes. Add twenty cents per mile. for fuel.
Uber drivers deserve fifty cents per mile. Uber contributes a penny per mile overhead. Anything over sixty cents per mile is highway robbery.
If you can sell, insure and pay taxes and Uber-mileage maintenance on a car which would allow someone to drive all the Uber brackets, for $365/year; you’ll have wannabe Uber drivers beating a path to your door in no time…….
Uber drivers earn market rates for their service, uber does not determine their pay.
None of this would be possible with realistic interest rates that actually calculated risk into that rate.
“As long as Uber has the confidence of investors, it can survive by raising money. But if that confidence wanes before Uber makes enough to pay interest on accumulated debt, Uber is toast.
Right now, Uber is a zombie corporation, totally dependent on investors’ willingness to keep funding Uber’s cash needs.” Same is true for TSLA. At least Uber is in an organically growing business; TSLA sells a product that may well have a static demand, the demand won’t increase over time unless there a breakthrough in battery capability. Pricing improvement with existing or evolutionary improvements won’t make the cars more desirable to increasing numbers of consumers. Riding sharing has hugely growing appeal, with an unpredictable demand curve. Growth.
Riding sharing has hugely growing appeal, with an unpredictable demand curve. Growth.
As long as the cost is less than the cost of traveling the same distance by other means sure . . . clearly if Uber is LOOSING money the service is not even priced at cost and you can get people to buy most things if you subsidize them enough. The true test comes when services are priced at above cost (enabling a profit). If people are still buying at that price point means they value the service enough to part with real money (not just what it would have cost them anyway). At this time there is no evidence that they value the service enough to want to pay enough to allow Uber to make a profit . . . making investing in the ride sharing business a leap of faith.
A short local uber to work (3miles) is $7.50 or $5.00 if you stand at a designated pickup. How can Uber lose money? Better yet how can people pay that much when a decent old car is $1,000? $30,000 student loans is one answer. Single women with bastard children is another answer. The instant gratification culture ends abruptly, homeless on the mean streets of San Francisco, Seattle, or Chicago. I don’t know about you but my taxes cannot afford to support these bums in the style to which they have become accustomed. Food stamps, section 8, and AFDC musts end.
End the welfare. Perhaps they will all invade Canada.
I’ll chip in to pay the freight.
I’ll rent the trucks to ship ’em to Canada or back to Mexico.
You are 100% correct. Time to stop paying the poor to breed. The working people who pay taxes have been taxed and abused to the breaking point. The welfare state is broken, bankrupt, and it must end. Time for poor people to stop having children and learn to grow a garden and fend for themselves. It is every man for himself.
“It is every man for himself.”
Just make sure it really is. Not just another round of progressive, self serving “yes, buuut…” newspeak. As in: Every man for himself. Learn to grow a garden. AND to defend it. It sure isn’t anybody else’s duty to do it for you.
I’ll defend my garden. Already am.
If only everybody else were equally responsible, we could have a really free country again!
Just what do you think all these people will do if you take away whatever meger monthly income they have? Find jobs? More likely turn to crime.
How many do you actually know? How many have you actually talked to for more than 2 minutes? Go talk with a few, as I have, and you will realize their problem (finding income) is hopeless, and our problem (having to pay to keep them from revolution) is also hopeless. It’s not the tea party radicals who present the greatest treat. It’s the people who can’t feed their families, bastard children or not.
Remember what Napoleon said: Religion is what keeps the poor people from killing the rich. And we are getting more and more poor people in this country and fewer and fewer are believing in religion.
Not my problem. Robots will displace tens of millions of workers. Just the way it is. People must adapt to change. A good starting point is to stop paying people to have children. ABC economics. Look at all the people running off to get a college degree when most jobs don’t require a four year college education. They are fools and they will be paying off their student loans forever.Hope this enlightens you.
You mean stop paying or hense provide an economic disincentive for certain demographic to stop having children?? Don’t think that is possible since a large portion of the population has an IQ of under 100
I’m afraid it will be ALL (as in every one who does make some money) our problem . . . revolutions never end well for the people with money. And no your 2nd amendment rights will NOT protect you, you can only shoot so many people before you go down.
Oh and good luck stripping anyone to breed, unless you decide to change the constitution it’s literally the ONE thing government can not regulate.
Don’t underestimate a 2nd Amendment movement or a tax revolt. The British did that once and The United States of America was born.
Really why is that when the unemployment rate is 3.6 you assume Uber drivers are unemployable or would turn to crime.. Really you talked to a few about their lack of real job prospects?
” Go talk with a few, as I have, and you will realize their problem (finding income) is hopeless, and our problem (having to pay to keep them from revolution) is also hopeless. It’s not the tea party radicals who present the greatest treat. It’s the people who can’t feed their families, bastard children or not.”
First, the tea party a threat? Say what? They just have a political opinion, which you apparently disagree with. Now, Antifa believes that violence to suppress free speech that they disagree with. Preventing free speech with violence means the end of liberty.
Second, the reason that finding income is hopeless is because we have deliberately made it so. We have crafted out economic system to prevent them from being able to find jobs. On the one hand, we set a high minimum wage, and those that are not capable of producing that that level, for whatever reason, are unemployable.
On the other hand, we have set high benefits for being unemployed, with steep cliffs (if you make more than $X, you lose your benefits). The net effect is that people who ARE capable of producing at minimum wage level effectively find that when you add taxes to lost benefit, they have a >100% tax rate. Why work when you are worse off. Mish posted a graph awhile back that showed that a Single mother with 2 children had more spendable income not working at all than she had if she made $50,000 a year.
200 working days per year * $20/day = $4000. Still cheaper than car ownership.
But arguably that was once again the ‘have nots’ throwing out the ‘haves’ and this time you are arguing that you are one of the ‘haves’.
Does anybody know what happened in NYC to all the taxi drivers that had to buy those expensive ‘medallions’ to be able to operate within the city? There were a number of suicides that took place because the cabbies would never recover the cost of their medallions. The medallion cost was a barrier to entry instituted by the city.
“The medallion cost was a barrier to entry instituted by the city.”
..Or the Gambinos…. Just on the offchance that the two somehow differ…
Chicago, Boston, Philadelphia and San Flancisco had similar systems. Per wiki, NY medallions were $25k in 1962, $325k in 2005, $600k in 2010, and $1m in 2013. Then they were $650k in 2015, and are now $200k. In other cities the prices were less extreme, but all have fallen in value. Chicago peaked at $385k, and they are now $30-100k.
Isn’t Amazon’s “profits” or operating income due to their govt contracts? Aren’t they losing money still on their online ops? Google gave it away for free at first and had to sell the idea that online advertising is great for business, no matter how much has come out in recent years saying the opposite… it’s all a con game… some markets are easier to exploit than others.
Only AWS really “makes money”, and AWS is basically a subprime server financing company to tech startups (cheaper to rent AWS servers, than it is to go issue stock to buy servers from a balance sheet perspective!).
You clearly know nothing about AWS or cloud computing. AWS is in fact more expensive for startups. It is the flexibility it gives at scale that make it so attractive. They make their money powering the large players, not selling to startups
Watch this space.
Uber is being sued in Australia. A class action lawsuit has been filed by 6000 cab drivers, hire car owners and Chauffeur service companies. The lawyers are an international firm. They have massive funds plus are being funded by many overseas companies who are in a similar situation caused by Uber’s operations. There is no doubt that Uber and other of these ride sharing organisations are “flaunting the law.”
Governments have turned their collective backs because of resulting “gig economy” employment figures.
flaunting? How so?
They’re only flaunting “laws” which are so arbitrary, confiscatory, oppressive, inhumane and contrary to even the most basic of human liberties, that they are completely and utterly invalid from the moment some tyrant arbitrarily enacted them.
Uber will be done in, because their technology is commoditized. There is very little reason for hailers to pay a 10% upcharge, and drivers to take a 10% paycut, just to keep Uber flush. The tech was a stroke of inspired genius when it was initially launched. But so was, even more so, the wheel.
Starting next week im offering riders between 5-10% discount on cash rides using my own system/app….I’ll even go up to 20% less than the current uber price as my system allows me to forward a screengrab of ubers ruling price at the time of their request…so there uber…all for you sitting with the card money for up to 7 days.. I’m going to market cash discounts until they bleed
That’s how capitalism is supposed to work, and exactly what Uber founder Kalanick would have done as well, were he in your position……
This is the quandary of technology. It all seems like infinite growth is possible, but nobody takes into account all the competition. The barriers to entry are too low. Eventually, the margins shrink to almost nothing.
In free markets, margins always shrink to near nothing. It’s capitalism. If that was not the case, capitalism simply could not work. Just look at housing, healthcare, insurance, finance and all the other rackets where free markets have been replaced by government mandated theft.
The possible exception being fields with overwhelming network effects, and fields where past performance specifically aid future results. Like internet search. But even there, excess margins are temporary, as you cannot hoard margins in advertising forever, before people start realizing ways to work around them. Like, for example dynamically pricing the same product lower if it is arrived at by clicking on organic search results, compared to if it is arrived at by clicking on an ad which cuts the search engine in. Nobody wants to cut in a middle man. And, if left free, people will bang away at that problem, until there is very little left for him.