Leaked Uber financials from 2012 to 2014
recode.net
recode.net
Q1.12: 1.4M / 3.4M Q2.12: 2.1M /2.3M Q3.12: 4.3M / 5.4M Q4.12: 8.2M / 7.0M Q1.13: 12.9M / 7.3M Q2.13: 19.3M / 8.1M 2013 (total): 104M / 56M Q1.14: 45.6M / 52.2M Q2.13: 56.9M / 108.8M
Rev grew faster than losses consistently all through 2012 and 2013 which is really amazing (2013 is when Uber jumped from a 330M valuation to a 3.5B valuation so investors noticed too)...then losses abruptly charged ahead in 2014 (see data pulled below).
Uber launched China in Q1 of 2014 - they are basically betting huge on China / India, and smartly being very clear to their investors that the $$ is for that very costly cause, so they can earmark the cash they are burning for international expansion as "meant to be burned." Also, if the bet goes the wrong way, they can (sort of) cleanly write it off as a failed (billion dollar) project, and ask investors to focus on their (hopefully by then) cash-cow business in the US.
Burn is all about international expansion, which is SUPER expensive, especially at the rate they are attempting. There is an insane learning curve that costs a lot of money to get on the other side of (hiring, culture, regulations, consumers, marketing are all different in each country - not to mention the fact that local competitors have all those in line already!) - look at pretty much any major US company that has attempted to succeed in China.
Good luck!
Simple math. Suppose opening a city costs $10 (once) and returns $1/year in revenue.
Year 1: Open 1 city, loss = $10.
Year 2: Open 3 cities, loss = $29 (spending $30 on new cities, gaining $1 from year 1's city).
Year 3: Open 9 cities, loss = $86.
Year 4: expansion stops, profit = $13.
That's a pretty bubblicious thing to say. Your model depends on the nature of the costs. Expansion costs aren't 100% and operational costs aren't 0%. I realize it was just a quick example, but profit will depend on how their costs are actually distributed. Certainly not automatic.
said nobody ever
What happens to the disrupted sector is the people who work there go find new jobs. Then when the giant monopolizer fails the sector can't return to the way it was before, too much knowledge has been lost.
Example: if WalMart closed tomorrow most of the thousands of small and medium sized businesses they put under wouldn't come back.
If Uber's model turns out to be unrealistic long-term the intellectual capital lost from the global taxi cab sector will only be partially recoverable.
When a company grows based on money they've earned it's the normal process of scaling. When they grow based on money they've borrowed it's no longer the market giving them the thumbs up, it's a couple of dozen investors. By the time WalMart was rapidly expanding it was clear their business model worked, might be evil but it works. It's not clear that Uber's business model is even legal.
However, if you look here there's some indication that earlier markets were at least closing the operating loss gap: QQ4.12: 8.2M / 7.0M Q1.13: 12.9M / 7.3M Q2.13: 19.3M / 8.1M
Losses slowed dramatically here, while revenue grew. Note, Uber was still launching cities at this point, but had already taken most of the major US markets - my guess is that SF + NY + LA were getting closer to paying for themselves while they streamlined their launch process into smaller markets in the US. I feel OK making that guess because it's hard to believe that an investor would not have asked for that, and it's hard to believe that an investor would value Uber at $3.5B (the valuation at that time) if that wasn't happening. (Note - I understand that investors are not always actually this rational, I'm just making an assumption in this case).
I imagine the pitch was: look at our early markets, they are cash-cows, and we know how to make them. Now, give us $XB to go make more of these cash-cows please and don't ask us about losses for a long time, thanks! Which is why they don't really care about these leaked #s.
Though according to this[1] article, Uber's at 3000 employees worldwide. What are those employees doing?
EDIT: For reference, Greyhound's 2014 operating costs were 600 million pounds (50 million in profit).
[1] http://techcrunch.com/2015/05/28/uber-new-hq/#.bb69xm:poPo
I'm actually blown away that they're losing so little, given the amount of revenue they're bringing in. Those are, despite what it may seem, really good numbers. If they can reach scale and capture the market (not trivial)... wow.
I agree that you need people to expand, but it never hurts to question how many people you actually need. Nobody denies that megacorps probably have many redundant positions, it's not possible for a company with 3000 employees to have them either.
It starts with one person who is responsible for spearheading the operation; that person is supposed to find, hire, and manage the other 14.
It's like Uber is opening up franchises of itself. The model has been nailed, so it's just a matter of cloning/duplicating that model.
I'm not certain on all of the details, but I find it absolutely fascinating.
Good example of a company that asked the question "how many people do we actually need?", with an unpleasant answer =(
The great part for Uber is that once they've trained their userbase, that cost largely disappears.
Open in new town. Sell at a loss to get customers. Go on hiring spree.
Local business can't survive the mass exodus of customers and employees.
Once the only job in town is Walmart and the only store left is Walmart you slowly raise prices and profit.
I suppose I'm not disagreeing with you, just pointing out WalMart's competitors are one of the costs they aggressively control :)
When the dust is settled, you're going to get a company that controls the private transport industry in an area that stretches from San Francisco to Kolkata
For an industry that was once dominated by small local players, this is truly mind blowing.
I don't think there is a single startup that is as obsessed with aggressive growth as Uber
But is their money buying control of anything? They are not buying control over a resource, like "all the tin mines in China" or something. Is it just spend on market creation that a fast follower can piggy back on for free?
Yay! Disintermediation! Smashing monopolies!
Oh, wait.
Of course, they are aware of it and are investing in being a leader in that market - but they're fighting with global giants over there, not the local Taxi outfits.
Go on, name me a year when there will be significant numbers of driverless cars on the road.
But you know what they say: prediction is hard; especially predictions about the future.
[1]: http://www.wsj.com/articles/is-uber-a-friend-or-foe-of-carne...
And don't write off customer service - it is expensive.
* You can't reduce DS expenses. You can offload them to drivers, but that will still be reflected in prices
* You can reduce wage cost by eliminating administrative load by having tools (apps, backends) do the job. Considering the size of Uber they are just transfering wages from operators to engineers.
* You can't reduce wehicle depreciation. You can reduce maintenance costs by having own workshop. Taxi companies might have that, for Uber that would be next to impossible due to practical reasons. You can reduce operating costs by buying fuel/insurance/etc in bulk. Agin, easy for cabs, difficult for Uber (not impossible though).
Personally I think a lot of Uber business model is hidden cost shifting onto the driver and society. Drivers are underestimating the true cost of being a Uber driver and society is losing out via inadequate insurance and tax avoidance. The drivers are not taking out the correct insurance and a lot of them are not declaring their income or collecting sales tax. I guess as long as it is all done on an app then it must be cool and OK.
What matters is passenger miles driven, not total number of unique car sales.
If you open up a new pocket of driving demand because it's easier to get a lift, then the total passenger miles driven goes up. Even more so if it is a pickup/dropoff model with 'empty miles'.
More miles driven->Cars worn out faster->more sales. More sales of likely generic cars less obsessed with expensive annual styling tweaks. More sales -> fewer models -> longer model runs = more profit.
I'd say the car companies are happy.
Use VC money to put taxis out of business then jack up the price and let the service level plummet as cheap immigrants become the drivers.
When cable TV was installed in the UK - thanks to US investment - they dug up almost every pavement in towns and cities nationwide, call centres were local to their customers, the technicians were actual skilled employees who worked in teams of several people.
Jump forward a decade or two. They are deeply in debt. Call centres are outsourced and often abroad. Technicians work for contractors and have nothing invested in the business they represent. If you live a few meters away from a cabled street then there's virtually no chance that they will hook you up.
I personally use Uber because I hate calling a cab company, finding out it does or doesn't have a cab to send, figuring out the address I need it to come to, getting a very general estimate of when it'll be there (8-15 minutes), etc. With uber I drop the pin in the exact spot I want it, I know the minute my cab is there. If cab companies had an app like that, they'd have my business.
The IRS currently allows a deduction of 57.5 cents per mile for business use of a vehicle. That's a ballpark figure for what the fuel and depreciation costs per mile.
I doubt that an electric car is that much cheaper per mile than a gas vehicle, since the battery is very expensive and needs to be replaced after some number of charge/discharge cycles. For a car that's used as a taxi 24 hours a day, you probably have to recharge daily, leading to frequent battery replacement. (A taxi can easily drive hundreds of miles every day - one round trip from midtown Manhattan to JFK airport is around 30 miles).
Even an electric self-driving vehicle requires periodic replacement of tires, shocks, etc. And a vehicle used by the public would probably require at least a daily cleaning of the interior. Plus, you're legally required to carry liability insurance (for damage you cause to other vehicles, people or property). Adding up all these expenses, it doesn't seem possible to break even by selling ads.
Source:
[1.] http://www.mercurynews.com/business/ci_28566633/lyft-forgoes...
Will you still use Uber? Probably. But many who started using Uber instead of, say, taking their own car or using public transport, just might go back.
The problem is not that you can't extract the price elasticity from the surge pricing of an Uber-like service, it is that you might not like the answer. Down rounds are not nice to founders.
My feeling is that the taxi-like market is a commodity market, but if I was going to invest at a $50 billion valuation I would want Uber to tell me that have looked into this in detail and can provide me with some hard data.
That's an excellent question and the answer is it wont be cheap. That's why, in countries where Uber operates, a clear legal framework is needed so that Uber doesn't end up with a monopoly. If Uber is allowed to operate somewhere then anybody should be able to do that without the need for an army of lawyers and lobbyists or it's just replacing the old boss with a new boss and in the end nothing's going to change for the consumer. That's what I hate with the whole situation.
I can imagine this argument holding true for resource-based businesses, say, oil and gas. I can't imagine a taxi services aggregator having that substantial an impact on a nation
They have to consistently provide a good experience for both drier and riders, who can switch literally by opening a different app on their phone.
Uber probably had the market strength to contractually demand that you couldn't be on the Lyft network while on the Uber network. If they had done that, they would have lock-in effects. Maybe they didn't because they were afraid of monopoly accusations.
Uber already has competitors in major markets. The market has very low switching costs. A new competitor doesn't even have to educate the customer on what to expect, or how it works, or even how to find drivers. All this has now been worked out, so any price gouging can be easily competed with.
I can only conclude those who want to 'regulate' Uber for the 'betterment of society' are severely long Taxi licences, or are hardcore socialists who abhor any economic freedom of agency, or maybe both.
That's a pretty stupid thing to say.
Regulation of taxi services does exist for a reason other than corruption or general malfeasance. On the one hand, deregulation might increase competition and reduce fares. On the other, regulation might help to avoid price gouging or ride refusals. There's a coherent discussion to be had there.
Your shallow dismissals of all attempts as regulation as by 'hardcore socialists' or 'Taxi licenses' contributes absolutely nothing.
Do you have any evidence of that? I'm 99% sure Uber is profitable on a unit and customer basis.
I'm sure they are making money in markets where the existing taxi service was truly dreadful and where they don't have to compete on price and have been able to raise their rates to on par or higher than taxi rates, but they are definitely paying a price for expansion.
Of course, that's the whole reason to raise capital (so you can expand rapidly on a model which has attractive unit economics).
The point is that we don't have to speculate about what will happen once Uber raises prices. Just look at their mature markets, where pricing is on par with taxis, and you can see a profitable model.
It's ironic because if the cities where Uber is madly profitable actually responded to their criticisms and reformed their protectionist taxi regulations, Uber would lose much of their pricing edge to competition.
They have a bunch of other expenses, but those are expected to lessen in the future. Training (of both customers and drivers) should fall to near-zero, for example, over time.
Uber's app history of tracking people is also not great. I use Lyft when I can. Last time I used Uber was in New Orleans, and even then I used the mobile web version.
It is no use half switching, if you have an app which has 50% of your friends and another with 100% which will you use? * that for every person and your retention drops and you end up with a feedback loop which is negative(churn) instead of positive (growth).
Now with Uber the switching costs are low (currently), you can just as easily request a lyft and drivers can use both apps.
The long term play of uber though will make it difficult for others to compete since network effects will kick in. If you have more passengers and drivers, it makes it that much easier for you to do real ridesharing I. E 2-3 people per a car driving down costs. Once you add additional revenue streams like last mile delivery + passengers + ondemand x and I can see why they are investing this much in owning the market.
if all drivers (who aren't uber employees) and all users can be part of multiple networks (bootstrapped from mobile phonebook and almost zero cost to both) how can uber maintain a dominant position?
I personally don't care which taxi company carries me on my journey.
I think icpmacdo's comment stands, though. Uber have built an amazingly strong brand that people do care about. To the point where I am willing to wait a few minutes for an UberX to reach me rather than hailing one of the taxis passing by.
Even though UberX is a bit inconsistent in quality, it is at least consistently better than taxis.
They seem to be following the same pattern as large supermarkets:
- Move into an unserved area
- Offer goods/services at rock-bottom prices
- As competition reduces, increase prices and squeeze suppliers
- Profit, profit, profit!
An interesting example of this is Tesco (https://en.wikipedia.org/wiki/Tesco), who at one point were receiving one pound in seven spent in the UK. According to the wiki, that's now widened to one in every ten pounds.
The other interesting angle is that Tesco have been hugely profitable until this year, when they reported a loss of nearly six billion pounds. We'll have to see what happens next.
Afterall, Uber does not own the cars or drivers. As soon as somebody else is willing to give them a better cut or or they are able to get more money per customer, they will always go there.
tl;dr: Uber has absolutely no sustainable long-term economic moat built around it and lighting cash on fire may drive current competitors out, it will not work as soon as they attempt to recoup those costs (profit signals market entrants, uber does not own drivers, cars, or customers due to zero cost of switching - it's just a fucking app).
single person with 1 car has no network effect. 1+ passengers does. See my post above.