And if you have new or growing product lines that incorporate into both revenue and expenses like Uber Pool does, you'd see exactly this shift _without a change in the underlying unit economics_. Which means that, not only are they losing money faster than ever, but they have no mechanism to stop the bleeding.
Does this mean Uber technically recognizes more revenue from from a $6 UberPool ride than a $20 UberX ride?
I do not think this a shell game to make the revenue number larger. The way drivers are paid while driving UberX vs. Uber Pool is different, and that probably has accounting rule impact.
It's to Uber's credit that on an ordinary ride, they don't try to claim that they have revenue equal to the entire fare. That would be an easy way for them to make their top-line financials look way more palatable than they actually are (ie, that they lost about $3B on $20B, rather than $3B on $7B).
But it may be genuinely hard to report on just the share of UberPool revenue that does not go to the driver, as my understanding is that the calculation is much more complicated in that case.
Uber's gotten away with a lot of stuff but I doubt even they could pull a 'whoops, forgot our expenses' sleight of hand. Especially since they try and frame drivers as 'contractors' and not employees
I think this is a matter of accounting judgment.
I'm not an accountant, but I remember reading somewhere that pure agency transactions have different accounting treatment vs. "principal" transactions where the party in question assumes more risk and is not acting strictly as a representative of another party (the UberX driver).
[1] http://www.journalofaccountancy.com/news/2015/aug/fasb-propo...
In the car of Pool, Uber hires the driver.
Part 1: http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
Part 2: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 3: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 4: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 5: http://www.nakedcapitalism.com/2016/12/can-uber-ever-deliver...
Part 6: http://www.nakedcapitalism.com/2017/01/can-uber-ever-deliver...
Part 7: http://www.nakedcapitalism.com/2017/01/can-uber-ever-deliver...
Part 8: http://www.nakedcapitalism.com/2017/02/can-uber-ever-deliver...
Part 9: http://www.nakedcapitalism.com/2017/03/can-uber-ever-deliver...
This is basically saying, look we were on a good trajectory from Q3-Q4.
But the question is, what happened after that?
None of that seems to have impacted Uber anyway, not meaningfully.
“We’re fortunate to have a healthy and growing business"
It's not sustainable, as sooner or later you'll go to jail, but they didn't say sustainable :)
Imagine your parents give you a $10 loan to start a lemonade stand. You think you need six years to make them an above market return on their investment of 2x.
You're gonna buy cups, lemons, sugar, and water.
In the first year you think you're going to spend $3 and make $0.
So you have $7 in the bank.
In the second year you think you're gonna spend $2, and make $1.
So you have $6 in the bank.
In the third year you think you're gonna spend $6, and make $4.
So you have $4 in the bank.
In the fourth year you think you're gonna spend $6, and make $6.
So you still have $4 in the bank.
In the fifth year you think you're gonna spend $6 and make $10.
And now you're profitable. In the sixth year you spend $6 and make $50. You pay back 2x your parents' money.
As long as you were hitting your targets, that loan looks like smart business from you and your parents are pleased that their investment outperformed the market and generated a huge return.
If you had trouble hitting your targets, or needed to raise more money unexpectedly, your parents might have said that they'd want a higher return or more security (equity) in the business. But if you're executing on your plan, then that's not gonna happen.
Businesses operate with debt all the time. Some businesses are lossmaking for a long time. Some businesses are lossmaking on billions of dollars of revenue. They have high central costs. They have high R&D costs. They have marketing strategies which require them to subsidise entry-level products and upsell.
The business is healthy provided the following things are true:
1. They've agreed a strategy and milestones with their investors and board,
2. They are hitting those milestones by executing on that strategy.
3. They aren't running out of money ahead of schedule, or running out of money on specific instruments ahead of schedule (for example they have debt financing with Goldman which I'm assuming is being used to acquire smaller companies or subsidise driver fares since that would be expensive to do out of equity).
4. The investors are prepared to honour their agreement to fund the company and truly believe in the milestones and objectives the board has voted on.
Uber has raised $15 billion to date.
In 2012 it lost $20m, in 2013 $15m, in 2014 it lost around $650m, in 2015 it lost $1.5bn, in 2016 it lost $2.8bn.
The business has burned $5bn give or take, or 33% of its total capital raise to date.
Let's say that the losses are understated and they've actually lost closer to $7bn.
They have ~$8bn in the bank or on credit. They have a team of 6,700 which let's say is 45% engineering, R&D, product and the remainder have a linear relationship to the busyness and scale of the business.
They don't have to think about raising money until the middle or end of next year. They could cut their workforce if they needed to get to profitability quickly for some reason.
You or I might not be comfortable running a business with a $2.8bn loss, but nobody on here bats an eye when a YC company loses a a million dollars on a couple of million of revenue with a few million more in the bank. But as soon as it's a b and not an m, people lose their minds.
Imagine your parents give you a 10 dollar loan to start a lemonade stand.
It costs you $3 to buy the lemons, sugar, water, and cups to make 10 cups of lemonade, that you sell for ten cents each.
In the first day you spend $3 and make $1. In the second day you spend 3 more dollars and make one dollar. In the third day you spend $3 and make another $1. In the fourth day you again spend $3 and make $1. At this point you now have $2 remaining.
On the fifth day a miracle happens and your mom gives you another 10 dollars, so you make and sell more lemonade. But you're concerned now so you ask all of your customers why they're buying your lemonade. They tell you that the only reason is the price, it's such cheap lemonade! If it were 2x more expensive they might still buy it, but certainly not at 3x.
And then what happens 4 days later?
Uber doesn't have a business model, they have a house of cards. They can't make money continuing to operate the way they do now, fares don't cover their operating costs, even if you factor out costs of "building" or "expansion". Their paths to success are either forcing everyone out of business by undercutting them and causing everyone else to go bankrupt, after which they can raise their prices back to the old market rates; or, somehow managing to get self-driving taxis on the market in the next 5 years so they can take driver compensation out of the equation.
It's not always a happy ending in the lemonade business.
This is pretty arrogant given that you're trying to prognosticate something that historically isn't predictable, the financial outcome of a company.
What you neglect to acknowledge in your post is that the there is a lot of signaling from Travis about his ethics being questionable, existing investors want to get their money out so there's no assurances they're being ethical, it's not impossible that Uber will come out as playing Enron accounting games.
In theory yes, but tracking the the progress of UberChina http://www.cnbc.com/2016/02/18/uber-losing-1-billion-a-year-..., situation in Denmark or Spain, inability to win market share from established players in Russia, India or Malaysia introduce some real-world corrections to an otherwise ideal business plan.
If investor money stopped flowing tomorrow and all companies were forced to be cash flow positive to remain solvent, we'll quickly see which emperors have no clothes. These unit economics will continue for every player in this market as long as investors feel it is worth fighting for. Those with better margins will survive and will suffer the least amount of dilution in the process.
When the dust settles Uber is going to be the only company that ever ends up making any money in this market.
I sold my car over a year ago and use a mix of ridesharing and rentals for transportation. Uber and Lyft's greatest competition in my life is a small Google product where people pick up people on their daily commute to and from work and the drivers are compensated only for gas money.
Locally, there is a company that will allow you to rent an electric car for free for two hours (it has an electronic billboard on the ceiling).
In the future, cheap electricity and efficient manufacturing might make a world where rides of a certain distance would be free or extremely low cost in exchange for advertising.
Transportation is a commodity. For a short ride, I don't care that much about the differences, whether I'm sitting in a Toyota Corolla or Mercedes S-Class. It gets me from point A to point B.
In this environment, I think the VCs pouring billions of dollars into Uber are throwing their money away subsidizing Uber's leadership in commodity market. Cheaper wins. I get to choose on each ride. There's no lock-in, there's really no reason for brand loyalty. Whatever is cheaper wins. If it's free, whomever gets here first wins. If they are both available right now, it's who has the nicer seat.
This is a race to the bottom and as a customer I'm only going to remember negative experiences with the brand. Lyft is better by encouraging themed cars but, they've stopped doing that from what I've seen.
There's a good chance that Lyft and Uber might face huge backlash for bait and switching drivers when they roll out driverless cars.
I'm bearish on Uber in the long term.
When I first heard about Uber I never thought about it as a replacement for the traditional taxi system but more of this. People on the way to their destination who can take some people there. Not some guy waiting around for the next person who needs a ride.
It's almost a standard by now: lose on every sale, make it up in volume.
Joseph Heller had that one first I think.
And chariot i think started in 2014, so Uber is very slow to respond, not sure why.
Totally different long term business model and why they are pushing so hard for driverless cars, because that's more of a platform.
I expect that they want to really be an infrastructure player more like Verizon than anything in the very long term where they have lock in through municipal or state mandate for contract vehicles and driving infrastructure.
Given their less than positive relationship with governments I could see a city/state starting with autonomous buses and then moving to cars in a hub and spoke type system for public transport level fares. Uber probably would want those contracts more than anything.
Is there any public information that says Uber is losing money on every sale? I'm honestly curious. In my brief searching, I haven't found much. I'd love it if someone would point me to information on Uber's finances/economics that shows their negative gross margin in developed city markets.
My mental model of their finances is heavy fixed costs (~5,000 programmers) and near-zero marginal costs. The only way they are losing money on marginal rides is if they are paying drivers more than the fare. Do they? I honestly don't know.
It makes sense, but I'm not sure it works out that way. Many web services have zero lock-in (not including those with a network effect such as Twitter and Facebook) and competitors are a URL away, yet the first ones to gain (mindshare? marketshare?) seem to keep it: Google search, Amazon, etc.
Uber takes me from point A to point B in a virtually indistinguishable way than Lyft or any of the other smaller ride sharing services. The most important thing is the transport, not the comfort, not the branding, not the "Lifestyle Experience". Maybe they will succeed because all of these people want something more out of a ride other than the ride but, for me it's cheap, reliable, fast; in that order. Everything else if fluff.
Amazon figured out how to marry a familiar and easy to use web-based store to a state of the art fulfillment pipeline, which is how they took over the market. Fulfillment is a non-trivial problem. Keeping track of what is where and how much is left, figuring out what to charge for shipping and handling, and figuring out where to keep stock and how to produce orders. A typical web-based shop will get to your order in one or two business days and be able to put it in the mail maybe that day or a day later. Amazon figured out how to optimize everything about their systems to be able to get your order in the mail within hours of you placing it. They've consistently been improving that process for years, and almost nobody can keep up with them. They can achieve same day delivery on a lot of common items in many metro areas, for example.
If Uber was as superior to the alternatives as Amazon or google was they wouldn't have any problems keeping marketshare. But they really aren't that much different than Lyft or other ride hailing apps. The core valueadd comes from being able to use a smartphone to set up your ride instead of having to place a call or having a cab be immediately visible to you. There's not enough that Uber brings to the table otherwise which would allow them to keep their business if they couldn't subsidize fares using VC money.
The Who's Driving app is great for this kind of thing.
Yeah, it's actually kind of amazing how many 'traditional' checkboxes Uber seems to miss with its 'rapid growth'. Little network effect lockin, low (ish) barrier to entry (with the hardest thing being brand recognition, with news of new/cheaper/'better' ridesharing plats potentially spreading like wildfire), opportunistic customers (and even drivers) without brand loyalty.
If Kalanick implements some sort of amazing plan to pull them through despite all of that (not counting the moonshot of expediting SDCs into the market) he'll be a walking testament to the whole 'market doesn't care who you are as a person, but if you can get the job done' maxim.
I'm not necessarily bearish - I'm not expecting an upset like that, but I'm not particularly invested in Uber so am more keeping an eye on it for the entertainment than anything.
They're fixing this. You buy 100 flat fares that you can use over the next 6 months, then you're more or less locked in.
I'm sure they lost even more money on me that month than normal.
We can double the size of a loss making business! We can lose money twice as fast!
Actually it looks like losses relative to revenues are smaller than they were, but that's still not impressive. Especially when it's non-GAAP anyway.
How much money do they have? How did they raise so much without giving any control away and not going to the public markets? I mean... a billion here, a billion there, sooner or later it adds up... right?
In competitive markets a lot of "me too" competitors pop up all the time. When you see consumers just picking the one that's the cheapest (i.e. with the most VC cash subsidizing the ride) and drivers rocking up with multiple phones on the dashboard as they too game these companies it's clearly all a fools game. This industry is a race to the bottom, but at least people get to enjoy cheap VC-subsidized rides while the party's still on!
Live by the sword, die by the sword.
I think the consensus is that rides are subsidised by around twenty cents on the dollar.
Ubers bet is autonomous cars. They pay a 75% fee to the driver. When autonomous fleets launch in the next few years they'll normalise prices at around 50%, meaning your $10 ride costs you $5, and each ride has wafer thin profitability (the additional 5% margin will be chewed up a little by maintenance costs).
And let's be real: Lyft did $600m of sales in 2016. Uber did $5.5bn. This isn't just a race to the bottom on price, it's about building a brand.
Out of the following contenders:
1) GM (+Cruise Automation), Mercedes or VW with their enormous supply networks, vendor lock-ins, economies of scale and ability to massively ramp up a car production when needed.
2) Tesla with their (allegedly unique) battery storage tech, working manufacturing facility and massive amounts of data harvested from thousands of Tesla vehicles on the roads today.
3) Google/Waymo with their unlimited budget, ability to partner up or buy whoever they choose, and nearly limitless amount of software engineering talent they can suddenly relocate to this project when desired.
4) Avis/Budget, Hertz or other fleet management company that already has a relationship with car manufacturer and can own/maintain/wash/clean/park/dispatch a large number of vehicles on the cheap.
5) Uber.
Why is #5 the strongest candidate? Does the dispatch app that displays available cars on the map create such a strong moat that #1, #2, #3 or #4 will never be able to replicate? Does Uber have a bunch of aces up their sleeve that will allow them to build/buy automobile manufacturing facilities on the cheap? Do they have a know-how of maintaining a large fleet and take care of simple things like changing a tire or cleaning the car after the previous passenger puked in it? And do that at scale?
Autonomous cars being generally available lowers the barrier to entry for competitors to Uber, and makes their position worse, not better. Uber's bet is Uber controlling the autonomous car market, which is a different and much harder thing.
Personally, I believe their bet is on not needing a large advertising budget once enough people know about their service.
Congratulations on your foresight, however I think the chorus you should expect from this audience is "they did it better than you, so get over it."
You forget that Uber was the last one to market with ridesharing. Lyft and Sidecar were out there faster. The reason why Uber is huge is because it was the first company to take all its money and go all-in into growth, by any means necessary. They spent and grew and got more funding until they were global within a few years, unlike most other companies. Their growth strategy is unprecedented and what is the most special about Uber, not the app itself, or even the idea.
You would most likely not have duplicated their growth strategy, and would have gotten steamrolled. At this point, there's no way you could get your foot in the door next to Lyft or Uber, without significant funding.
FWIW, back then my friends sounded a lot what you are saying. Oh it's too hard. Oh you'll be up against big boys.
And I didn't do it b/c I'm a bit of a perfectionist. Uber did it. And, from what I understand, they did it by hiring someone off an offshore programming website. MVP.
And they built the human pyramid. That's what you need to do to retire. Build a human pyramid.
Don't wait for success or money if you want to start a family, there really never is a 'right' time.
That's pretty awesome that you guys thought of hosting videos. The idea escaped me, even after watching photo.net & then Flickr. I was working on an idea back then & the issue was the cost of bandwidth, right? Sure.. put videos on the Internet... but how would you ever pay for that much bandwidth? I guess that's why a Silicon valley crew did it. They could somehow see the decline in bandwidth pricing, understood how much extra fiber capacity there was.
We should have gotten together then. I owned the domain fullscreen.com (and I made nice websites!)
Software is hard! The winners show what it takes. Just put something out there! AirBNB ruby on rails! Facebook... PHP! Google... python!