Don’t miss Yves Smith’s interesting breakdown of Uber’s prospects in New York Magazine Some highlights:

 

The fact that this glorified local transportation company continues to be a financial failure should come as no surprise. What should be surprising is that the business press still parrots the fond hope of Uber’s management that the company will go public in 2019 at a target valuation of $120 billion. That’s well above its highest private share sale, at a valuation of $68 billion. And Uber’s management and underwriters will no doubt hope that the great unwashed public looks past the fact that more recently, SoftBank bought out insiders at a valuation of $48 billion, and its offer was oversubscribed. Why should new money come in at a price more than double where executives and employees were eager to get out?

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The only advantage Uber might have achieved is taking advantage of its drivers’ lack of financial acumen — that they don’t understand the full cost of using their cars and thus are giving Uber a bargain. There’s some evidence to support that notion. Ridester recently published the results of the first study to use actual Uber driver earnings, validated by screenshots. Using conservative estimates for vehicle costs, they found that that UberX drivers, which represent the bulk of its workforce, earn less than $10 an hour. They would do better at McDonald’s. But even this offset to the generally higher costs of fleet operation hasn’t had an meaningful impact on Uber’s economics.

***

 

Uber’s other way of making its margins less terrible has been ditching its worst operations. But even then, Uber’s new CEO Dara Khosrowshahi effectively admitted that Uber isn’t profitable in any market when you factor in corporate overheads. Uber has been frantically adding new business like Uber Eats and scooter rentals to keep its growth story alive. Uber not only tacitly admits that they aren’t covering their costs, it refuses to give any detail about these operations beyond their revenues and does not discuss what it would take for them to turn the corner.

But what about driverless cars? Let’s put aside that some enthusiasts like Apple co-founder Steve Wozniak now believe that fully autonomous cars are “not going to happen.” Fully autonomous cars would mean Uber would have to own the cars. The capital costs would be staggering and would burst the illusion that Uber is a technology company rather that a taxi company that buys and operates someone else’s robot cars.

Uber has succeeded in getting the business press to treat its popularity as the same as commercial success. A few tech reporters, like Eric Newcomer of Bloomberg, have politely pointed out that Uber’s results fall well short of other tech illuminati prior to going public. The pitch that dominance would produce profits is demonstrably false and Uber seems unable to come up with a new story. There’s every reason to think that investors, not local cab companies, will wind up being Uber’s biggest roadkill.

 

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Posted by Carlos Alvarenga

Carlos A. Alvarenga is the Executive Director of World 50 Labs and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

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