Uber might be one of the most popular companies in the world right now. Almost all of us have used their service. Uber describes itself as “A technology platform.” They go on to say that, “Our smartphone apps connect driver-partners and riders.” Therefore, the drivers are technically independent contractors that don’t work directly for Uber.
Uber went public on May 10th of 2019. They’ve only been on the stock market for little over a month, but have already caused a storm with investors. Uber’s stock started out as $45 per share, and it’s only decreased in value. After launching at $45 per share, Uber ended May 10th at $41.57 per share. Three days later on May 13th, the stock hit an all-time low at $37.10 per share. It’s steadily increased since then but still hasn’t gone above its opening price of $45. On June 5th, it actually hit $45 per share, but then quickly declined and hasn’t caught up since. Some analysts say that you should stay far away from Uber’s stock, while others think buying is a smart move. So, what does the future of Uber look like?
From a simply financial standpoint, Uber is an absolute mess. Uber is losing more and more money from every ride they’re a part of. Research from Recode shows Uber loses an average of $1.20 on every ride. In 2018, Uber reported an operating loss of $3 billion on revenue of $11.3 billion. These are concerning numbers from a company that launched in 2009.
Uber’s IPO was probably the most hyped technological event since Facebook became public in 2012. People know that Uber is losing money, but the allure of investing in another “Amazon” is too much to keep people away. However, there’s a problem: Uber has burned more money in the past 9 months than Amazon did in 7 years. This is alarming and should be a HUGE red flag to investors. The company is spending so much money that just to break even seems like an insurmountable task.
Recent reflections say Uber is losing around $1 billion per quarter. The company simply doesn’t charge its users enough to make up for these losses. Here in the Tampa area, here’s a pricing outlook for an Uber X (the standard one):
SEAT CAPACITY: 4
These prices are much cheaper than they should be, and Uber knows this. They’ve invested in self-driving technology that will eventually eliminate the need to pay their drivers altogether, which eliminates the need to pay 80% of a ride’s fare to its driver. However, recent reports show that the cost of operating an autonomous vehicle could still be more than personal car ownership.
Forbes writer Stephen McBride is so pessimistic in Uber’s long-term evaluation that he said: “As far as I can tell, Uber will never make money.” Many analysts have been saying this. Even Uber itself has told people that they don’t think they’ll be profitable for a long time, as noted in Uber’s SEC prospectus: Uber said it expects operating expenses to increase “significantly” for the “foreseeable future,” warning that “we may not achieve profitability.”
Gad Allen, Director of the Jerome Fisher Program in Management and Technology, agrees that the idea of Uber being just a ridesharing service won’t keep the business sustainable. However, due to its ventures in meal delivery, electricity, aviation, and others, Allen thinks that “Uber is going to turn out to be quite different than what they are now.” I think the idea of Uber expanding its horizons and becoming more of a technology company is a great move. This will keep investors curious about what’s next to come.
Allen even compares Uber to Netflix. Netflix shipped out DVDs to people’s homes, a business that wasn’t sustainable. What this did, however, is bring Netflix’s name to millions of households. When Netflix became an actual streaming service, that brand-recognition helped get its name off the ground and running. Allen thinks Uber could be doing something similar, and ridesharing is just the “shipping DVDs to homes” of Uber.
In a report from Wedbush, the point was made that Uber is just beginning with rideshare. “A core tenet of our bull thesis on Uber is around the company’s ability to morph its unrivaled ridesharing platform into a broader consumer engine with Uber Eats, Uber Freight and autonomous initiatives ‘just scratching the surface’ of the full monetization potential of this platform over the next decade.”
Uber’s CEO Dara Khosrowshahi has been credited with helping cut down spending. Some investors place their confidence, and money, with him. Evan Rawley of the University of Minnesota even believes that Khosrowshahi can help make Uber have positive cash flow in the “not too distant future.”
Uber is a company, like Amazon, that has taken enormous financial losses in hopes of someday becoming profitable. It has a 68.9% market share and is slowly becoming more of a technology service than just a driving app. One reason why Uber is valued so highly is market domination. From 2016 to 2018, the company almost tripled its revenue from $3.84 billion to $11.27 billion.
I think the future of Uber will come down to its ability to create. If it can innovate the market with its new technologies and really stand out, then the company has a chance to be really special. The issue is that no one knows when this is going to be. If Uber isn’t able to become profitable until something like 2024, will they be able to keep investors happy with billion-dollar losses per quarter? What happens if they aren’t profitable for 10 years? All these questions make Uber one of the most fascinating companies to watch for the next few years. They’ve created something that absolutely makes human life easier, but will investors be optimistic about its future in different technologies, or give up on a company with zero cash flow? We’ll have to wait and see.
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