Late last year I posted about how Lyft lost $127 million in the first half of 2015 on $46.7 million in revenue. I realize tech companies just operate in their own world and in many cases investors are willing to throw more money at them even when they’re losing almost three times as much as their total revenue in a year. At the same time, outside of the tech world that’s not typically a thing, at least not long term.
Well, if you thought Lyft’s losses were bad, Bloomberg just ran a story this morning about Uber’s losses (which are much worse in absolute terms, though as a ratio of revenue aren’t quite as bad).
Last Friday, Uber’s head of finance shared some details about their financial performance in the first half of 2015:
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 totaled at least $1.27 billion.
Uber’s losses and revenue have generally grown in lockstep as the company’s global ambitions have expanded. Uber has lost money quarter after quarter. In 2015, Uber lost at least $2 billion before interest, taxes, depreciation and amortization. Uber, which is seven years old, has lost at least $4 billion in the history of the company.
Uber’s net revenue in the first half of the year was just under $2 billion, and they lost about $1.27 billion. Somehow the company’s latest valuation is $69 billion.
A majority of the losses from Uber come from the subsidies that they’ve created for drivers as a way of encouraging them to join Uber and drive a certain amount. I’ve sometimes felt guilty about how low Uber fares are in some cities (like Los Angeles), though perhaps if they’re racking up such big losses largely due to subsidies, the drivers are in many cases making more than I think through various incentive programs.
I know largely that this is just how tech companies work, but it still blows my mind that Uber has such a valuation when they’re losing $1.27 billion with about $2 billion in net revenue over a six month period. I know their goal is growth, but the more they grow, the more money they seem to lose.
Sure, they’ve been fighting a lot of legal battles, and presumably they’ll be able to save on some costs as they scale more and figure out which markets are worthwhile. I also know their goal long term is probably to eliminate as much competition as possible and then raise prices across the board to a more sustainable level, but there will always be competition. After all, this is “just” a tech company, and the barriers to entry are pretty low, especially on a regional level.
Do you think Uber will ever turn a profit?
Lucky, you shouldn't feel guilty about paying a cheaper rate for Ubers. I've heard that Uber in many cases pays the drivers more than what riders are paying. That is no way to run a business in the long term. So if you only pay some $6 for an uber, it's highly possible the driver could have made $10 or something. I may need to do more research on this but I've heard that this is the case.
Uber is a great business model but needs managers that can run it profitably. Most of their problem is related to their pricing strategies. An example is Charlotte,NC where the base fare is $.75/mile and after Uber takes their share the drivers make about $.61/mile or about 5 or 6 cents a mile above the actual cost to run their vehicle. Sure, there are surges between 1-3 am on Fri and Sat night but it...
Uber is a great business model but needs managers that can run it profitably. Most of their problem is related to their pricing strategies. An example is Charlotte,NC where the base fare is $.75/mile and after Uber takes their share the drivers make about $.61/mile or about 5 or 6 cents a mile above the actual cost to run their vehicle. Sure, there are surges between 1-3 am on Fri and Sat night but it makes very little difference for drivers when they get $.72/mile versus $.61. The important point is that Uber is priced at 1/3rd the cost of a taxi and there is no way for drivers to survive in this pricing strategy. Even the customers say it is too cheap. If they were priced at 1/2 the cost of a taxi at $1.25/mile (the original fare in Charlotte) the drivers could actually make an income and Uber wouldn't need too pay huge startup incentives because you could keep drivers. And Uber would have more revenue to offset their excessive overhead costs. The drivers would become more knowledgeable of the job, provide better customer service, and not have to also work for Lyft so they can earn tips to make more money (Lyft allows to tip drivers online whereas Uber does not support their drivers in this way). Many drivers work for both companies but always give Lyft priority. I hope Uber figures this out as I have never heard of a company being successful long term without supporting the people that provide the service to the customers.
Uber is a ponzi scheme.
Driverless cars will not have drivers who pay for maintance and fuel. Thus ubers costs will actually go up. Who is going to maintain, house and clean these vehicles?
A loaded mile costs 1.00 to run before insurance. Ride share companies are paying more for insurance per mile then they collect from drivers. A ride share insurance policy in austin showed. 39 cents per loaded mile.
Uber...
Uber is a ponzi scheme.
Driverless cars will not have drivers who pay for maintance and fuel. Thus ubers costs will actually go up. Who is going to maintain, house and clean these vehicles?
A loaded mile costs 1.00 to run before insurance. Ride share companies are paying more for insurance per mile then they collect from drivers. A ride share insurance policy in austin showed. 39 cents per loaded mile.
Uber has not changed the cost of Transportation but put onto drivers who are desperate and do not understand the economics.
I feel bad for the drivers sometimes too. In Santiago, Chile the fares are so low I felt bad asking drivers to turn the A/C on to the point I didn't ask unless I was riding UberSUV which is around the price of UberX in Miami. Although the cars are nothing special by American standards.
Boo-hoo. Like the software but don't like how they avoid some important stuff - paying local taxes, proper licensing and checks on drivers (or any checks, despite protestations to the contrary), etc. I won't use them on principle. However my wife does, and I've noticed a substantial dropoff in service quality lately in the West LA area via her experiences.
I laugh. Remember when the initial premise was 'black car ride for cheap'? That's how...
Boo-hoo. Like the software but don't like how they avoid some important stuff - paying local taxes, proper licensing and checks on drivers (or any checks, despite protestations to the contrary), etc. I won't use them on principle. However my wife does, and I've noticed a substantial dropoff in service quality lately in the West LA area via her experiences.
I laugh. Remember when the initial premise was 'black car ride for cheap'? That's how everyone pitched it to each other - but obviously that didn't last long as it wasn't sustainable. Now it's "ride nearly incognito so that local authorities have trouble tracking us - for cheap - with a stranger in their car- who often hasn't learned how to drive properly in the first place.
The fundamental appeal behind all this is still essentially, 'something for nothing', and I don't think that's sustainable in the long run. That said, as an investment? who knows. Amazon has yet to make a regular profit in their core retailing business, even while avoiding the collection of sales taxes for many years, and has leveled massive collateral damage on local business infrastructure in the process - but it was one hell of a Ponzi scheme for early stockholders.
Totally agree with Andrew B, driverless Uber cars will be starting in Pittsburg, it won't take long before that rolls out across the entire fleet! And a one time investment in the cars will not only cost way less in annual depreciation than any driver, but will ble to work 24/7 and will not whinge about being an employee to the courts!
I blame the federal Reserve aka monkeys with keys to the castle.
Their easy money policies have enabled unprofitable projects to linger. That said even of there was misallocation of resources due to easy money it has generally been in direction of improvement of quality of life.
Kalanick said in February 2016 that they were losing $1bn a year in China, and the subsidy war supposedly got worse this year so at least $500m of that was from China, maybe more.
I'm curious what they actually spend money on that racks up so much cost when they just skim 20-30% off each ride in most Western markets? Centralised techies to work on the app, a bit of advertising, public/governmental relations and some...
Kalanick said in February 2016 that they were losing $1bn a year in China, and the subsidy war supposedly got worse this year so at least $500m of that was from China, maybe more.
I'm curious what they actually spend money on that racks up so much cost when they just skim 20-30% off each ride in most Western markets? Centralised techies to work on the app, a bit of advertising, public/governmental relations and some customer service for the small proportion of rides with issues. You'd think they'd have economies of scale.
Uber can lose $1.2B with $0 in revenue. They didn't lose 1.2B of that 2B in revenue. Losses don't come from revenue.
How much of that loss came from China? They had to sell that off to the local competitor.
Good. Any pain for them is excellent, given how hideous the customer experience is.
@Andrew B - yes but if they have to buy all the cars (and the R&D that goes into them), then their cost base is going to increase substantially too!
@Andrew B - I'm thinking the same thing
My guess is that Uber's business model is going to transform substantially over the next decade as driverless cars become much more common, enabling the company to pocket all of the revenue generated from rides.
I'm wondering why you feel bad for paying a low price in Los Angels? I enjoy paying a low cost for things and the drivers choose to do it.