Uber Q3 Results
investor.uber.com
investor.uber.com
One of Ubers biggest problems is that they have zero brand loyalty. For a company that sells a utility (get me, or my food, from A to B) rather than an experience (like a cool vacation in a unique mansion), I will always pick the cheapest option. Whether that’s Uber or Bobs Taxis it doesn’t matter. That means this whole business is a race to the bottom. Profits will stabilize at approximately zero for everyone in that business. The second huge problem is that nothing about providing this utility (neither the driving itself, nor the human labor required of the driver) has decreased since Uber came into existence. Driving a car from A to B still costs the same per mile (gas or electricity and wear and tear), and the driver still costs the same per hour (at least minimum wage). Uber has only made finding the ride more efficient but it has not made the actual ride itself more efficient. So in the best case, Uber can be as profitable as a taxi company. But ONLY if it raises its prices to taxi company levels. And then it’s a taxi company. Taxis are expensive for a reason, because without a VC subsidy they have to be profitable to exist. And what if there are robot drivers? Wouldn’t that eliminate at least the human cost? It would. But it would do so for every other transport company as well, and by the same amount. Since there is no customer loyalty for a transport like this, Uber would still be fighting the same competitors in a similar race to the bottom. In summary, nothing can save Uber.
It's a race to the bottom and I suspect after all the hard work is said and done Uber will be the Yahoo of ride share. Tesla may very well swoop in and say "Thanks for blazing the trail"
The only way Uber works as an investment (at the level they've accepted money) is if they somehow kill off traditional taxis and all competition and become the only game in town (where "town" is basically the whole U.S.), and charge taxi rates or above.
Given that the cost of entry I to the market (at least for customers willing to see the cheaper rates) is essentially zero as by the nature of the business your drivers can drive for anyone, making Uber work as an investment doesn't look very likely to me. Not that I'll feel all that bad when those people lose money. I'll just call that karmic justice for investing in a company with such a horrible record (I believe if Uber didn't have billions invested by the elite they would have been shut down or heavily regulated for bad business practices years ago).
Last ride I got the driver told me he only considers the premium jobs from uber and prefers Didi.
If I need to go somewhere, or get home, Uber has never let me down. Likewise with food delivery, I certainly have been let down on that but Uber does the best job of letting me track the order and get a refund if needed.
Sure Lyft is an alternative, I have it on my phone but simply never use it.
It’s incorrect that nothing has changed about the cost of a ride. Taxi medallions used to be 500k-1m and require essentially taking out a mortgage. Now they are worth effectively $0.
And cost was never the core issue with Taxi’s, it was the unpredictability of the cost, having to pay in cash because the drivers incentive is to skim from the owner, having to find one or call for one, having to put your trust in a random driver in a random country with no idea if you are going the right way.
Look to NYC where they seem to have set the goal of making Uber as expensive as possible (10s of dollars in random fees per ride). It’s still popular - in a city with some of the best taxi options.
If people won't stop using a company that is so blatantly bad we're in trouble.
Now, that doesn't mean they're a good business of course -- they're probably a terrible business -- but that's a reason to use them, not to avoid them.
With that in mind, unit economics at both Uber and Lyft seem to be about the same, and both equally dreadful. Lyft never made some of the even worse investments (like trying to compete in mainland China without government support). Those days appear long behind Uber, though, for better or worse.
Those companies have been Microsoft, Apple, Google, Facebook and Amazon.
Financially you could have done amazingly well in the stock market simply by buying whatever big stock techies hate at the moment.
(Not saying Uber will necessarily continue this pattern. Even though they have the brand, I don't see how they intend to fix the enormous losses. That's very different from the optimized zero profit Amazon was making for years.)
> Those companies have been Microsoft, Apple, Google, Facebook and Amazon.
That's a great point. I'd add IBM to that list and the time frame would reach back to 35 years.
Also had trouble getting support- no way to contact them.
unfoetunate because t works great when I had it.
> At least for me uber has huge brand loyalty, it’s sitting in the dock of my iPhone
Hear hear. It feels to me that brand loyalty arguments are really opinions being extrapolated to the rest of the population. For example, one can reasonably argue airlines don't command any brand loyalty for the average traveler and how they are in a race to the bottom, yet many people will readily tell you how much they hate X airline or how they love Y airline. One could say the same of hotels, shampoos, socks, what have you. There always are those that don't care for the brands, and those that do.
> If I need to go somewhere, or get home, Uber has never let me down.
The real test of brand loyalty it staying with them after a few bad experiences.
It’s clear that airlines do not have brand loyalty sufficient to create significant margins like Apple or some such.
I wouldn't assume that just because people vocalise brand loyalty, means that they stick with it when it's time to open their wallets.
Of course these businesses have some barriers to entry (so does Uber. Lyft et al. notwithstanding), but it's not a result of network effects that we're used to with companies like FB and eBay.
Of course! But they’re not valued at 10x revenue like tech companies. Uber stock has nowhere to go but down.
It doesn't help that the most visible "successful" tech companies are all monopolies or duopolies (Google, Facebook, etc.)
But for every category-dominating Microsoft, there are dozens of very successful software companies in every vertical. Dozens of project management software companies, countless task management software companies, etc.
McDonald's is top 10 most valuable brand in the world. It has massive brand loyalty & defensibility through it.
Seems like that's why they started limiting hackney carriages and regulating rates in London in 1662.
Also the horse had to be less than 14 hands high!
https://www.british-history.ac.uk/statutes-realm/vol5/pp351-...
Back when Uber was new and everyone in SF was exclaiming how awesome it was and disruptive, one of the major taxi companies in Stockholm launched a new version of their app that basically had a big button going "I want a taxi to my location now", and you pressed it, and you got a "Hey, your taxi will arrive in X minutes".
And that's like the entire value of Uber right there, replicated cheaply by local competition.
# No money changes hands, so safer for drivers.
# No payment is made in the vehicle, so faster exit times.
# Uber records all trips, so easier to work out costs to expense.
# Uber uses any credit card, so your boss can pay for your ride without the need for separate expensing.
# Driver and passenger are tracked, so there it is easy to find who did what. There are a lot of rape charges and cases against Cabbies.
# Rating - I've been in a LOT of awful, awful cabs.
# Drivers can work 1 hour and make some money. Try that with any other job.
IMHO, ubiquity, especially when traveling, will ultimately be the winning move.
Many of Uber’s customers are price sensitive. The minority who are not price sensitive are more likely to (be able to afford frequent) travel, but I fail to see how loyalty from this segment will translate into profits over the long term, especially since their international presence in multiple but not homogenous markets is a bet that economies of scale will yield a handsome pay off, where it clearly hasn’t as they had to pull out from direct competition in China for instance.
# No money changes hands, so safer for drivers.
Not true in many countries where cash is supported in Uber.
# No payment is made in the vehicle, so faster exit times.
Not true in many countries where cash is supported in Uber.
# Uber uses any credit card, so your boss can pay for your ride without the need for separate expensing.
I wouldn't do that a lot of times - I switched a few cards on my Uber account and had to contact support a lot of times because they froze all my payment options after that. Imagine being in the middle of US as European then getting all of your cards declined by Uber because you added your friend's card.
# Rating - I've been in a LOT of awful, awful cabs.
And I've been in a lot of awful ubers - the rating system doesn't work unless people actually do rate drivers, and people don't rate as much as you think. Also, if you don't want a driver but there isn't many drivers online, you keep getting reconnected to him even after canceling and selecting it's because of the driver multiple times.
# Drivers can work 1 hour and make some money. Try that with any other job.
Not really, the amount they earn in that 1 hour - when you remove Uber's cut, tax cut, gas and vehicle amortisation is terribly low. Some say they barely make ends meet with 8 hours driving.
I've taken Ubers in at least 7 countries, many of which have had a cash option (India and Vietnam), neither of which I took up. The average uber driver will have considerably less cash on them then the average cabbie.
> No payment is made in the vehicle, so faster exit times.
Only if you pay in cash.
> Uber uses any credit card, so your boss can pay for your ride without the need for separate expensing.
Uber supports having both a business and personal profile, which you can change before or during a ride. Every business uber I take has the receipt sent directly to my work email, and charged to my work CC.
Im not sure what you're trying to say? All Uber markets that support cash also support card.
> Card Declines Of course you will get blocked if you add an active uber accounts payment method. Thats basically a huge red signal for fraud.
> Rating Of course someone needs to be the first one to rate the drivers. Yet this is 100000x better than nothing, which is what most regular cab companies give.
>Money Not really? This is absolutely country/city dependent and the whole point is that YOU as the driver get to decide if its worth it or not. There are no upfront costs involved.
And the card decline wasn't done with a card that already was active on Uber. And their "fraud" system got triggered months later, repeatedly, after a drive or two.
Also yes there are upfront costs in my area, in US maybe it isn't but here you have them.
I'm not saying Uber is worse than cabs. I'm saying that a lot of "advantages" Uber has aren't really all that. They are in a race to not burn their money before their AV investment can can come in, and in the end, it's just cabs with an app, not much better or worse than cabs.
3-4 years ago, the play was different, but now, it's becoming "just another cab company" in that area.
Their fraud system is one of the best in the world, but of course it will have false positives. You know that your anecdote is not applicable to the business in general.
What upfront costs do you have? Where are you based?
I maybe get your point but I think you're vastly underestimsting the difference between a tech company optimizing digital transportation vs. A local cab company hiring a consultancy to make them a white label app.
They went 40 mins out of their way to return it and tried to refuse the money I offered them for their trouble.
This would have absolutely not happened with a cab.
All their taxis do card payments, and have done card payments for decades before Uber.
> No payment is made in the vehicle, so faster exit times.
They didn't have that option when they launched the app with GPS booking, but they added it later. It now works just like Uber, you have cards on your profile, it charges your chosen card after the trip.
> Uber records all trips, so easier to work out costs to expense.
Of course they can email you your receipts if you want.
> Uber uses any credit card, so your boss can pay for your ride without the need for separate expensing.
So does this taxi app. Companies can also have accounts with the taxi company, so if it's a work trip you just use the company account that you've already entered into the app.
> Driver and passenger are tracked, so there it is easy to find who did what. There are a lot of rape charges and cases against Cabbies.
There are not a lot of rape charges and cases against cabbies in Stockholm, at all, so that's not a problem to solve.
> Rating - I've been in a LOT of awful, awful cabs.
Taxis in SF are godawful compared to taxis in Stockholm, so yeah, if you're used to the shitty cabs of SF, Uber is a step up. If you're used to pretty much every single taxi being a Mercedes like in Stockholm, Random Dude's Toyota is a step down.
> Drivers can work 1 hour and make some money. Try that with any other job.
That doesn't affect me as a customer, really. Also, when I get in a taxi in Stockholm I know I'm getting a properly licensed and insured ride, not just some gung-ho gig-economy hopeful who is driving his Toyota an hour a week.
Like I said, I understand that Uber was a step-up for the SF taxi market, but there are plenty of markets where it isn't, and where it's much-hyped technological invention just isn't very hard to replicate for local competition.
Driver cost per trip = Driver cost per hour / Driver utilization.
By making finding the ride more efficient, Uber meaningfully increases driver utilization, decreasing driver cost per trip.
My friend's sister got hospitalized after her Uber driver ran a red light because they were not privy to traffic queues most normal people would have caught on to (like stopping when a light is turning red)
I will gladly spend a couple extra bucks the ~20 times I need to Uber a year so that I am not getting into a screaming metal death trap with an unfit driver.
Would need to evaluate the one-time charges to determine if they actually would be ongoing. Simply having some one-time charges doesn't mean they will necessarily be perpetual.
In fact, the vast majority of riders have a preferred option even without the frequent rider incentives. This is even starker on the driver side.
The advent of pooling and continuing improvement absolutely have had a significant impact on the economics.
Uber has delivered various efficiency improvements including map-based routing and pricing, pooling. Lyft has "Shared Savers" that trade time/walking for lower fares and more efficient pickups/drop-ffs.
In fact, Uber & Lyft are frequently more expensive than taxis because of surge pricing and superior product.
Uber & Lyft are in the best position to take advantage of robo-drivers.
I don't think they are. The cost savings on using driveless cars for taxis are huge. Any operator will be able to massively undercut the competition. Consequently the most sensible thing for whichever company gets a level 5 driverless car first would be to run their own ride company and not sell or license the tech to anyone else. That's what Waymo is all about and why Uber are trying to invent their own driverless tech.
Any brand loyalty will evaporate literally overnight as soon as someone launches a driverless ride service simply because it'll be half the price of all the other human-operated services, far more reliable (no more cancellations for a better fare), and probably have many more cars available 24/7.
Wouldn’t be so sure about that. The operating company will still be trying to maximise profits after all.
This argument only makes sense if a driverless ride service can be launched overnight. Driverless rollout will take many many years. The slower the rollout and patchier the service availability, the better off the TNCs are.
Both companies are doing right thing to invest heavily in new businesses + experiences + new markets - despite what pundits say around here and that wall street wants to suck out all growth for short term "shareholder value maximization".
That's exactly how they built their business. They should not be surprised of the consequences!
wow. how many trips do you do?
I enjoy the product and will enjoy the cheap rides while they last but the business mode seems flawed.
It may not warrant as much customer loyalty as - say - Apple, but "zero" is simply untrue. To give a most ovious example, in a foreign country/city I'd be strongly inclined to choose Uber over other alternatives because I'm already familiar with it.
For the same reason why I'd eat at McDonald's (rather than some local hot-dog stand): not quality, but safety. I see the risk that I get scammed / food-poisoned as lower.
> Uber has only made finding the ride more efficient but it has not made the actual ride itself more efficient.
It has, to some extent: in the form of shared rides. Traditional taxi companies don't provide such option, for fairly obvious reasons.
> And what if there are robot drivers? Wouldn’t that eliminate at least the human cost? It would. But it would do so for every other transport company as well, and by the same amount.
Not if you've got your own IP behind it - whereas your competitors need to rely on third-party solutions - or even if you can get a better deal on a third-party solution.
> Uber would still be fighting the same competitors in a similar race to the bottom. In summary, nothing can save Uber.
The exact same case could be made for Burger King.
It's quite possible that nothing can save Uber, it's clearly struggling, but I don't think your reasoning correctly sums up actual causes of that.
After we were picked up, the driver helpfully informed us if we'd ordered the same ride via Ola (he drives both), it'd have been ~50% cheaper (as a new user).
Naturally, I installed it and now I'll switch between Uber and m Ola. This then expands to Bolt, Grab, and so on, and you realise it's virtually the same experience with different branding and the sole differentiating factor is price.
I definitely buy the convenience aspect: it's way more comfortable to pull out your phone and order a ride on a platform you're already familiar with. My trouble is the barrier is so low to install another app (and new joiner incentives are financially motivating) that this leads to virtually no brand loyalty.
Perhaps in a different world, where there are no up significant upfront financial incentives and perhaps drivers were exclusive to a platform (i.e. to pass their rigorous screening processes is a sign of quality), that'd certainly buy some loyalty from me.
At least on my case this means that I’m not always trying to pick the cheapest option, but instead go with the option that has had good price/performance ratio in the past.
It seems like they are always taking out a bunch of one time charges to claim that there core business would be profitable. But every quarter they have those charges. I don't understand how people say their ride sharing business is profitable. I mean maybe it is and I just don't understand how people think that. I would love it if someone would walk me through that.
The criteria for figures you use is audience dependent. Report creation 101. Decision makers, regulators, investors are all different audiences.
Uhh...no. Non-GAAP is financials manipulated against accounting standards to show a better picture. No company wants to show a worse picture.
Essentially, it's as if p-hacking were codified as an industry standard, which is to say, it's exactly p-hacking.
Getting first two numbers right was the hard part :)
This explains it decently IMO
> Assume that you own a business that has an overall value of $100m and generates $10m in annual income, and that you hire me as your manager. Assume also that my compensation is $1m and that rather than pay me with cash, you give me 1 per cent of the business as compensation. While you may maintain the fiction that this is a non-cash expense and that your income is still $10m, you are now entitled to only 99 per cent of that income in perpetuity. In effect, your share of the business is worth less and it will get even smaller over time, if you continue to pay me with equity. But if you are a common stockholder in any company that grants options or restricted stock to its employees, then you are in exactly the same position.
While it's obviously bad for shareholders, it basically dilutes their profits in the future, but if those never come, who cares about that dilution? I think it would affect my opinion of the stock long term, but short term any way they get towards profitability minus stocks is a way that someone actually sees a dividend.
But of course, most people actually looking to buy and sell individual stocks won't really care a ton about the dividends IMO. And it's not like people really use voting rights today on tech stocks even if they are offered. It's always fascinated me that stock games like that really come down to just betting on future performance compared to the opinions of others. It's comically confidence based and nothing else.
So if Uber were to eve somehow reach profitability minus stock compensation, their business itself could actually take advantage, even if the shares of others were diluted in terms of dividends.* So if you're buying and selling stocks individually in the current pattern, Uber hitting that middle zone of technically nonprofitable but adjusted profitable would be a good sign for long term resilience, however that factors into the current confidence equation.
How the stock market hasn't been classified as gambling at this point is wild to me.
*I'm actually not personally clear on if it is a dilution or those specifics, its surprisingly hard info to find online easily. One thing is clear though: the company's cash flow itself is not affected at all.
And that’s to develop and maintain an app, probably one of the absolutely cheapest things one can do in any industry.
Quite maddening indeed.
As an example, look at how they've improved upon GPS in urban areas to take into account satellite visibility to determine which side of the street you're on: https://eng.uber.com/rethinking-gps/
They invest tons into just solving small problems like that. Not to mention all the open source work they do, ATG, etc.
Then consider that Uber has to have pretty big operations, sales, marketing, and support teams in each market they operate in. It's not just a handful of engineers working in SF. Their massive costs considering their scale makes total sense to me. This is not to conclude one way or another whether or not they are a viable business.
I think you can argue that in the long run Uber doesn't need to be more high tech than FedEx or WalMart. They are an app powered by logistics. You maybe don't need to offer Silicon Valley incentives to do that in the long run.
From a Deloitte piece[2]:
"A study published by Audit Analytics noted that 97 percent of S&P 500 companies used non-GAAP measures in earnings releases during 2017. Further, the number of non-GAAP measures used per filing has almost tripled from 2.35 in 1996 to 7.45 in 2016.
In addition, a study published by FactSet indicated that for the second quarter of 2018, 77 percent of the companies in the Dow Jones Industrial Average reported non-GAAP earnings per share and 61 percent of these companies reported non-GAAP earning per share that exceeded GAAP earnings per share."
[1] https://corpgov.law.harvard.edu/2019/02/07/sec-scrutiny-of-n... [2] https://www2.deloitte.com/us/en/pages/audit/articles/a-roadm...
Does this mean that raising the price by 10% has them breaking even? Maybe.
It does show the immense potential though, their bookings are so large that 10 percent change would net them billions more. They are booking 1 billion dollars worth of rides every week.
Kind of a hot take, but this is why I'm long Uber. They're processing an insane amount of orders, and getting a huge amount of people using their app. If Lyft dies, or if a merger occurs, then we have a large ride share company that is still a lot more than 10% better than taxis. Most customers will still be taking Ubers, regardless of that 10% price hike.
Of course, this is just for the ride share business. I don't see how food delivery will be profitable long-term. Maybe it'll be just a loss leader for them?
With the amount of people that use these rideshare companies as their primary job or to make their daily commute, it seems hard to imagine going back to the pre-Uber/Lyft days. Not that the government or any regulatory body would see it this way. I just think consumers are better off with a monopoly here. Plus, whatever rideshare service that survives will still have to compete with local taxi companies.
Suburban life is also different from city life. A 15-20 min isn’t that bad in suburbs.
Life has become a lot more convenient currently for me in suburbs knowing ride sharing is around. I almost shivered thinking about the last time I used a taxi a decade ago in suburbs.
The problem is that there is no willingness to enforce laws against predatory pricing, so no one can even break even on this type of transportation.
Together the two of them are just a paltry 1% or so of vehicle miles traveled last I heard. Combined they are still almost two orders of magnitude away from having monopoly power.
Granted most studies show that demand for ridesharing is inelastic at current prices, it says nothing about switching to Lyft etc...
But on a constant currency basis gross revenue grew at the same rate, so the only reason it was slower was due to exchange rate changes.
"Uber doesn't need to be profitable, they just need to survive until their autonomous cars are deployed"
It's quite possible that when automomous vehicle operations start working, the big players will be car rental companies. It's a natural extension to their business.
One set of businesses here has modern engineering practices and the other set are dinosaurs. Furthermore, rental companies have more employees dedicated to sales than to fleet management and their entire current customer base is rental car consumers. They literally need to redirect money to R&D long term where that R&D serves no benefit to their current customer base. Wall Street will punish the stock of rental car companies short term for spending R&D on becoming ridesharing businesses that serve a customer they don't yet even have mindshare with. With the TNCs however, wall street won't see any problem with them building out their own fleet. The only condition where wall street looks down on the idea of own fleet management is if they believe a franchise model with third party fleet managers make sense. Either way the TNCs own the relationship with the customer and therefore has all the power.
I get my car to drive to me to work and then it goes out and operates like a taxi while I'm working. I'd be worried it comes back damaged or vomit all over the place.
No thanks.
Cars can be leased, reducing capex, and maintenance can be handled by specialised companies.
Overall it seems that this upside far outweighs the downside.
Let’s pretend Waymo has 100% safe, easy producible, street legal self driving cars available today and everyone else was clearly several years behind. I see this would play out in a few ways:
1) Would Waymo actually want to spend billions to buy enough cars to maintain their own fleet in most cities in the world/US so that you could quickly and reliably hail a self driving car (and spend on marketing / referrals to grow marketshare). Would Waymos/Google investors actually allow them to lose this much money to start a new business that has historically been so unprofitable?
2) Would Waymo just sell cars to consumers/rental car companies, who would then deploy the vehicles to uber/lyft. In this scenario wouldn’t the cars be even more price sensitive about automatically switching between driving for different platforms and optimizing for the cars time. Wouldn’t consumer still open their uber/Lyft apps, check for the lowest price and then take the cheapest ride? Isn’t this fundamentally the same economics issue (unless the rides perhaps get so cheap that consumer no longer bother to check)
1) Own the technology, not lease it
2) Have the capital to build out a fleet
3) Have the technology before others for long enough to build a moat.
Adjusted EBITDA. We define Adjusted EBITDA as net income (loss), excluding (i) income (loss) from discontinued operations, net of income taxes, (ii) net income (loss) attributable to non-controlling interests, net of tax, (iii) provision for (benefit from) income taxes, (iv) income (loss) from equity method investment, net of tax, (v) interest expense, (vi) other income (expense), net, (vii) depreciation and amortization, (viii) stock-based compensation expense, (ix) certain legal, tax, and regulatory reserve changes and settlements, (x) asset impairment/loss on sale of assets, (xi) acquisition and financing related expenses, (xii) restructuring charges and (xiii) other items not indicative of our ongoing operating performance.
But I'm really not even commenting on these results precisely. They would have been in an entirely different position without all the distractions. Uber's ride business now makes a billion dollars a month in revenue. That's after paying drivers. If they had been laser-focused on making the ride business work, they could have grown a much lower-overhead business. They could have taken the company public years ago. An earlier IPO would have meant those huge stock-based compensation packages would be off the books by now. A just-get-me-a-car Uber would have been GAAP profitable by now.
Adjusted EBITDA is just a made up term. It is isn’t GAAP so by definition it isn’t Generally Accepted. Made up metrics are generally used by startups and non profitable public companies to justify their valuations to investors.
How much of their expenses are required for a theoretical rides-only Uber? Impossible to say; they don't break out spending by segment. But we can make some guesses. The rides product has now existed for many, many years. Did they really need to become a ~22,000 employee company if all they were going to do is rides? I would guess no. So the question here is really: how much of their current expenses do we think only exist due non-rideshare business? The autonomy program is evidently an expensive bust. I see a lot of scooter marketing, which we can tell from this report isn't selling. Food is growing but they're in 3rd place, and it seems like they spend a lot of money to even get to third. So really the question is: are >30% of their expenses due to the non-ride business? I would guess yes.
I’m more calling out the tech industry in general and some posters on HN specifically about how they sugar coat the performance of money losing present and former unicorns and they don’t measure success by profitability or at least marginal profits where you could see a clear road to profitability.
Dropbox for instance is a YC/HN darling. It is one of only two YC funded companies to ever go public, has never been profitable and looks like it’s going to be squished as other players like Microsoft, Google and even Apple make their entire business “just a feature”.
Remember just 1 month ago, when WeWork tried to FRAUD everyone with their "we invented our own EBITDA"-metric, which they called 'EBIT adjusted for consciousness, because we sell consciousness, so we factor in the amount of consciousness we generate per square mile!!!!' ?