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Comment by WisNorCan | Hacker News Reader

Growth companies are valued on future expectations and not on current financials. You have to believe that the economics will improve for Uber.

The $68 billion Uber valuation is also not real in the sense that investors have liquidation preferences and multiples. Employees don't and have the inverse of what is given to investors. The real value is some fraction. They have also stumbled like no other company before them. This probably has some impact.

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That's my biggest wonder, how can the economics change for the better?

It improves every quarter for them. Every time they open a new market they have to spend hundreds of dollars per driver in recruitment incentives. Once they build out the market, they start making positive margin. If you try to grow internationally as fast as possible, that means tons of money on driver recruitment and building market infrastructure before the revenues come in.

If Uber wanted to be profitable they could stop expanding into new markets, kill Kalanick's Krazy side businesses, and would likely be profitable the next quarter.

Say they have a break through in self driving cars and cut the fee they're paying to drivers down to just the depreciation of the vehicle. They'd be profitable immediately.

Even if they make a breakthrough in self-driving cars tomorrow, it could still be many years before laws are updated to enable them to legally operate self-driving cars (without drivers present) in all the different states and countries that they do business in. Insurance companies would also need to be willing to insure these cars before they'll be legal to drive.

To operate self-driving cars, they'd need to buy or finance the vehicles, which is a huge expenditure. They'd also need to hire people to clean and maintain them, since drivers wouldn't be doing that anymore. They'd have to bear the cost of fuel (whether gas or electricity) and insurance, which drivers currently pay for. Once they pay for all that, would it cost more or less than paying a driver who provides their own car? I certainly don't know.

Also, even if all the factors noted above balance in favor of self-driving cars in the long term, it may be a while before self-driving cars come down enough in price to compete with human drivers in conventional vehicles - it takes significant engineering work to evolve a design from a prototype to mass production.

The question is whether Uber can stay in business long enough to reap the benefits of self-driving cars. I don't think the answer is obvious.

Simple - autonomous vehicles. It's the single largest line item of COGS. Reduce a COGS line by let's say 25% for revenues of $10B and you all of the sudden have another $2.5B in extra profit.

EDIT - I totally simplified that math (and it reads odd as stated), but you get the point.

Autonomous is has need been the answer to me. It has always seemed like a way to raise more money using the latest fad. With autonomous you have massive up front capital costs and then you have to hire staff to service the cars.

Also, city and state regulators are not even close to allowing massive fleets loose on the roadways. Uber will need 5+ years of burn or positive cash flow before they can even begin to rely on autonomous cars and that is only in easy to navigate dense cities of the world.

If, for example, Uber crushes all competition, then they can raise fares and lower partner payments and make a bigger profit.

This "raise prices after crushing competition" piece is something that practically never happens unless you manipulate governments to institute rules that preserve Monopoly. Even then as SpaceX & Uber showed, rent seeking gets punished by market.

If they raise prices significantly, someone else will come at a lower price with lower service quality (as already happens in Asia) and take a share of more price sensitive segment of the market.

Or if they become the self-driving service of choice, they can lower fares and capture a larger portion of the broader transportation market and make a profit.

Every time Uber scores a municipal victory, they're lowering the barrier to entry for competitors.

not necessarily true. Uber is developing relationships with the regulators in all of their markets, a highly local endeavor. It's possible, even likely, that they are going to use these relationships to their own advantage when launching self driving cars in different markets.

And why would governments, that haven't allowed even private railroads in the past century, allow that to happen ?

If you put it like that, no government will stand for that. They can even look good on jobs while destroying uber.

And increases the size of their moat.

So true

Raising fares would open more opportunities for competitors to enter the space.

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