An Uber Struggle

By, Brett Scully

Uber, in spite of a 30.0% third quarter increase in revenue, is still burning cash at an alarming rate of $11.0 million per day.  Their $1.1 billion quarterly loss, despite meeting investor expectations, is still a substantial loss to Uber’s bottom line.  With other cash burning tech companies such as WeWork facing immense criticism and a lower valuation, how long can these high-growth, zero-profit startups report massive losses until investors invest elsewhere?

Lyft, much like Uber, also reported substantial quarterly losses of $463.0 million.  These losses, however, came with a 63.0% increase in revenue of $955.0 million, more than double the growth of Uber’s top line. Just this week, Lyft CEO, Logan Green, announced that Lyft will run profitable operations by 2021, a year ahead of schedule.  Uber is planning to be profitable by 2022.

Uber’s promised 2022 profits are nice on paper, however, the ride hailing company’s lack of concrete plans has made many onlookers nervous.  Despite the top line growth exceeding revenue expectations, Uber’s stock price still sank 7.4%, making it very clear that investors are becoming much less complacent to massive quarterly losses.

As skepticism continues to grow on Uber’s profitability potential, the corporation continues to make efforts in investing into more profitable revenue streams.  Uber has recently announced they plan on investing aggressively into Uber Eats, a segment of their revenue that has seen continuous losses, increasing by 70.0% year-over-year.  Despite these losses, Uber Eats has seen positive earnings in 100 of their 500 cities of operation, demonstrating the potential for profitability when done right.

Along with these investments in market penetration, comes new market development.  Recently, Uber purchased a majority share in the grocery delivery service, Cornershop.  This acquisition comes as a second attempt to push the “Uber Everything” initiative of 2015 that failed miserably despite introducing Uber to the market of food deliveries.

With all of these new investments and attempts to gain market-share over the continuously growing competition, Uber will continue to be watched under a microscope as the company seeks profitability.  With Uber’s recent 1,000 worker layoff back in October, it’s clear that the company is making huge changes in policy in order to meet these ever-increasing investor expectations.

Despite the optimistic profitability goals, Uber has been met with a couple massive blowbacks that could lead to potentially devastating investor confidence.  Following the 180-day lockup period restricting inside or early investors from selling their shares, Travis Kalanick, an Uber director, sold 20.3 million of his Uber shares worth roughly $547.0 million, representing 20.0% of his ownership. This massive sale, along with other smaller sells, has brought Uber’s share price down to $25.58, the lowest ever since their IPO.

Concern is also rising from looming legislation in California that is pushing to make Uber and ride-sharing services treat drivers as employees rather than independent contractors.  Uber, Lyft and DoorDash have started a ballot initiative in order to convince the courts to keep their drivers as independent contractors. However, if the initiative falls through, it could be devastating for the industry’s bottom line.

All in all, the combination of the increasingly scrupulous investors, the continuous lack of operational profits, and negative sociopolitical news, indicates trouble for Uber.  As many onlookers remain optimistic with 98.0% of Bloomberg analysts rating the Uber stock a buy/hold, it’s clear that Uber must meet their profitability goals sooner rather than later.

Featured image by Dan Gold.

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