Did I miss something? I thought Uber was still a long way from being profitable and had no plausible plan for how to become profitable.
They kind of are. It’s just a matter of timing. They are rolling future profits, bankrolled by VC.
Uber is accumulating… uh. Microservices? Negative goodwill?
Seriously, this argument doesn't make sense to me? How can them spending more money help them make more because of taxes?
You should be already rich and structure your capital properly for this to work.
Makes a huge difference long term, as one is filled with payroll taxes and high rates, and the other is 15%.
So if you consider getting all salary in cash and then buying GOOG (or any other stock) with it, you come off only a month or two late on the period for which you are holding the stock. And for that, you lose out on the diversity of the stock.
This also assumes that your GOOG stock starts vesting immediately and there is no cliff. Otherwise, you will be holding the stock for "cliff" period longer if you just get cash salary and buy the stock.
Disc: Googler but this comment doesn't have anything specifically to do with Google. Google is just an example here.
If you make 200k a year for 10 years, vs get no salary for a startup for 10 years and then its sold out for 2 million dollars, they are completely different tax conditions.
Im not an expert or have been through this, but if you sell 2 million dollars at 15% long term rate vs the 35~% + medicare of salary, the difference will be huge.
I guess it's inspired by Amazon's history of reinvesting, but missing the point that Amazon's motive most certainly was to actually invest into growth.
There are of course many companies that engage in all sorts of morally bankrupt but legal tax optimisation strategies. But Uber is rather different from, say, Apple, in that Uber has absolutely no need for creativity to depress their profit. They are haemorrhaging money the old-fashioned and totally legit way.
Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.
If they believe it just destroys the money it keeps, they will start demanding a payout.
I see a lot of parallels here. No one doubts anymore that app-based cabs are the future and traditional taxis business is pretty much done now. So if you take that as foundation then there has to be one or two companies that would eventually dominate this business. With first mover advantage, Uber has good chance of being one of them.
It drives me crazy that so many people equivocate them.
Retailers can use economies of scale to lower prices and increase variety of products. There are no economies of scale in Uber the way it's structured now and the service is largely homogeneous. There could be economies of scale with self-driving cars, but why should they be the winner there?
The only way they managed to offer lower prices (which is the main concern to riders) is through VC subsidy. There is simply no way to significantly lower prices for taxis, unless you have self-driving cars.
The only thing Uber has is a limited power of a local network effect which is a relatively weak moat.
Is all that money lost just subsidizing the cost of the ride? If they stop subsidizing the drive price, which they will have to at some point I imagine, will people just abandon the service?
This writing has been on the wall for ages, but people keep looking past it.
Uber I think somewhat internally knows this, and have thus tried either moonshots or diversifying. Uber Eats actually looks to be profitable since you take driver surplus and turn it into profits, simplifying a bit. Self driving moonshots are just that - moonshots.
You can already see the effects of them squeezing drivers with recent strikes and issues including a possible 600M+ arbitration costs from drivers.
I think history has demonstrated that betting against Musk is not a wise choice.
He has proved his words countless times now. I have no idea what you are talking about. Only criticism I have about Elon would be his estimations on the time but I work in the tech field too and I can relate to issues coming up which postpone the deadlines.
How exactly is Waymo thought to be the leader? It's like the same argument short sellers have been making for years that Tesla electric cars will be overtaken by other car manufacturers. Come back to me when Waymo has overtaken Tesla in actual and on the market product.
Uber burns money like it's going out if style and has no clear path to profitability.
Source: https://oversharing.substack.com/p/bird-raises-prices-to-tri...
https://techcrunch.com/2017/06/28/a-look-back-at-amazons-199...
If people are perplexed by uber today it's because the unit economics look horrible, and it doesn't seem like they will improve without a major technological advance.
Edit: TBF, I was curious so I checked out AMZN's first year of trading: https://finance.yahoo.com/quote/AMZN/history?period1=8528832...
They dropped 20% on day one. I don't think that reflects investor skepticism re: shopping online, but skepticism re: the myriad risks they faced as one of many money losing online retailers.
As much as I love Amazon and always have, in the early days it was "just" ordering books online. Yes, that was great and again the UX was great but it didn't seem as revolutionary as Uber.
Edit: negative marginal costs -> negative marginal profits.
It’s why we use multiple metrics to evaluate a business, but it’s clear that Uber has large positive gross margins.
Ignoring all other expenses and saying that a company is a good business is ignoring reality.
I’m not just choosing a method that makes Uber look bad. They are not profitable or successful based on a legal GAAP definition of profitable.
If we just cherry pick numbers, we might as well think that WeWork’s made up metric of “community adjusted EBITDA” is valid.
https://news.crunchbase.com/news/wework-details-run-rate-rev...
From what I saw in the S-1, their core platform -- which I assume is ride hailing -- was profitable until Q4 2018. They offer heavy incentives in order to compete, but once they're sufficiently established in a market, looks like they can become profitable on that front by no longer offering promotions in order to fight Lyft/whoever.
They just need to stay solvent longer than the competitors, and being in more markets than the competition should help with that.
Their R&D is also massive, but they could stop most of that if they needed to.
With Uber, what's their moat, so that when they raise prices to become profitable users don't just move away?
Lyft/local taxi companies/public transport, all have the infrastructure to provide the service that uber provides.
The moat is there but the question is one of diversification and sustenance as a public company. In the coming days, there'll be a massive internal push to reduce costs, diversify and become profitable. If the foundation of the company is strong, they'll be able to get through this period. Instead, if most of the early employees jump ship (which I strongly suspect is likely to happen), it's going to meander. For Uber's own sake, having a mature and repentant Travis back might not be a bad thing. They'll need a second wind at some point.
Public transport is barely used in the USA perhaps but that's not the only market Uber needs to compete in to succeed.
And this isn't taking into account Uber's many run-ins with local authorities, which are dragging on , costing money and have the possibility to shut them out of some markets.
From what I understand Uber's main answer to this is "autonomous taxis" but to me that's a long way from being a viable business model.
In one of Uber's largest markets, NYC, public transport is extensively used, and I assume that many price-sensitive Uber users will go back to taking the subway or bus if Uber raises its fares too much.
Luckily for them: Cuomo and De Blasio have a running bet going to see who can bugger it up more completely.
Uber essentially sets money on fire in order to make the rides cheaper than alternatives, but that will eventually end. I've got some bad news for you about what happens to prices when that occurs.
Of course that is the ultimate goal of Uber, and all ride sharing systems: to destroy any and all local public transit and competitors, no matter the cost, by setting obscene amounts of money on fire and then, when it's all said and done, they get to be the only name in town and price however high they want.
(Side note, but it's going to be legitimately hilarious when Uber re-introduces the concept of "buses" and tech nerds here drop their jaws in disbelief at how amazing it is.)
> Public transport is barely used.
I've got some bad news about places outside of the US (and even many places inside the US).
> Uber is providing a subsidized public service while employing a lot of people.
No they don't; they actually do not do either of those things. Uber isn't a "public service", by definition, that is, unless words simply don't mean anything anymore. It's a business designed to make money; the fact that you confuse these two proves Uber's marketing is working on you, not that it's actually true in any meaningful way.
They also don't actually "employ" any of their drivers, the largest part of their "work force", and they have argued that position in court as well in order to avoid paying benefits, etc for their drivers. And of course, their inevitable goal is to just move to autonomous cars as far as possible, meaning those "employees" (who aren't actually legally defined as such) will eventually get kicked out of the whole system, if they can get there. Of course, once that happens, the tune will go from "uber employs a lot of people, and therefore they're good" to "why did you ever expect uber would keep employing you? just get another job" over night, without a hint of self-reflection at all.
Lyft already did: http://nymag.com/intelligencer/2017/06/lyft-reinvents-the-bu...
Is Delta Airlines "public transportation"?
For street hail, the cost is higher because the government sets regulation about the equipment (eg compulsory CCTV, meters etc).
The net result is that the cost of an Uber ride is almost identical to a street hire, identical to using one of the other apps that are around (13 cabs, Ola etc).
Uber has a name/brand advantage, but it has lost the cost advantage over the old taxi model and it has lost the app advantage as the app is easily replaceable.
Many drivers operate on more than one app and street hail cabs (the "original" taxis) operate on both.
Uber's business model for their core business is unsustainable, the margins and operating costs are identical to other operators, there is no advantage of scale.
Uber's Q4 2018 revenue was about $3B, up about 25% YoY. Its losses are a little hard to parse due to some tax shenanigans, but maybe $865M is about right (or maybe it should be worse), so 28% of revenue. Its market cap right now is around $85B, about 28x quarterly revenue.
It assumed that the market would not react or it assumed that the VCs would keep funneling cash to keep it going.
Uber's business "model" always was unsustainable and the IPO and subsequent drop is entirely realistic as people realize that.
Uber Eats and some airy-fairy driverless vehicle models will not sustain it.
Currently Uber does not fund its vehicles, how does it think that the capital cost of running a driverless taxi fleet in a city will somehow be cheaper than the current cost of driver+car?
Uber doesn't have the capital to actually replace its current business model with one that is capital intensive and it will be eaten alive by existing fleet logistics and car manufacturers. It has no distinct advantage when operating a driverless fleet than Fedex or UPS or the equivalent operators.
Uber is already withdrawing from Asian cities (eg Bangkok) where the price of taxis was close to cost, and in other cities (eg Melbourne), where Uber's flouting of the existing law has lead to deregulation, Uber is just another brand in the market. The price of a normal taxi hailed on the street and an Uber (I took Uber to/taxi from the city the other day, non peak, non surge) was literally within 5%.