Is Uber the next WeWork?
Uber can't keep on losing money forever right? How does Uber become profitable? F in the chat for my boy Travis Kalanick, he was a real one :(
Can someone articulate a bull case for Uber? Love the service, but I think the valuation is insane.
I’ve argued for a year or two that Uber and Lyft’s business model makes no sense long-term. Of course, everyone understands that the straight ride-share model is not a sustainable model—it simply costs too much on a variable basis to ever be profitable. But investors are/were banking on self-driving cars making Uber a trillion-dollar company. I’ve been arguing that that assumption makes no sense. Tesla, Ford, GM, VW, et al have better technology than Uber and the ability to actually manufacture the product, and Waymo has far better technology and enough capital to simply buy an OEM manufacturer. What does Uber have by comparison? An app? Maybe Uber can be a major player in the self-driving taxi service, but it’s definitely not a sure thing; at best it’s uncertain, but I think it’s more likely than not that Uber and Lyft go the way of the dodo if/when the self-driving taxi services get launched, and that’s if they can make it financially to that point.
Uber poached one of Waymo's top engineers who took tons of confidential documents with him. They were supposed to essentially copy Waymo's technology.
Btw Waymo doesn't want to buy cars, they just want to go the ride sharing route like Uber and outfit their driving technology on existing cars
Right, and Waymo successfully sued Uber over that and that guy is now gone.
I strongly doubt Waymo's ability in, say, 2030 to simply buy a fleet of vehicles from a manufacturer. I don't see a manufacturer taking $5,000/unit profit in a sale to Waymo when Waymo turns around and makes $100,000/unit on vehicle. I think eventually Waymo is going to have to partner with a manufacturer or buy them outright because the manufacturer would be crazy to simply bulk sell them cars for hardly any return.
they're not anywhere near the top technology for self-driving cars. All they have is an app and a business model based off of hemorrhaging money, AND they face fierce domestic and international competition AND they face backlash from politicians and the general public AND they will have to raise their prices eventually AND the lockup period for the stock is over so anyone smart is going to sell off this shit and get out while they can.
Here is the thing. UBER/Lyft are almost a piece of infrastructure at this point and majorly help cities with lack of solid public transit.I see an out as a government bailouts/subsidy income.
INB4: Socialism
This must be tongue-in-cheek. Uber is one of the least popular companies among the bureaucrat class.
"it simply costs too much on a variable basis to ever be profitable"
People keep saying this and it simply isn't true. In Q2 2018 (using this because I found a pretty clean breakout from that quarter, Uber had $12B in gross bookings.
Of that $12B, Uber had $2.8B net revenue and $1.5B in gross profit. So on a gross margin basis, Uber has been profitable for some time. It's also likely true that they're especially profitable in cities where they're at scale and less profitable in smaller cities/suburbs where they're still ramping up to optimal scale, although we don't know for sure because Uber doesn't report by geo.
But in any case, Uber is definitely profitable on a unit basis.
Now in that same Q, Uber had $2.2B in operating costs which more than wiped out their gross profit. That $2.2B goes to S&M, G&A, R&D and non-COGS support costs.
Now those are very real costs, but as Uber continues to scale (Uber is still growing 23% YoY), their margin profile will naturally improve through operating leverage. And then on top of tha, Dara is aggressively laying off people to further reduce those operating costs.
So Uber is definitely profitable on a unit basis, and it will at some point be profitable on a company basis. The question is how profitable and at what scale.
good insight, SBd
This might be the dumbest "smart" post I've ever read on WSO.
This is an intellectually honest summary of your position: you're arguing that Uber's model is profitable and viable because on a variable basis it throws off gross profit despite the fact that it runs massive operating deficits due to its overhead, and that all it needs to do is scale.
Uber produces in the order of $50+ billion of revenue per year and you're saying that it hasn't reached scale? All Uber has to do to reach profitability is to continue to scale? This is delusion of the highest order. All Uber has to do to reach profitability is to defeat the competition and become a monopoly is your position. Not even Uber believes this is a realistic scenario since it faces intense competition, which is why it just announced a tentative partnership with Volvo to buy an autonomous taxi fleet.
Reality check: overhead and administrative costs are realities of running a business. When you scale to $50 billion of revenue and your gross profit can't cover your overhead costs then your business model is not viable. You need MORE gross profit
Not just Uber either.
Uber lost $1.8 billion in 2018 Lyft lost $911 million in 2018 China's Didi Chuxing lost $1.6 billion in 2018
How do anyone of these ride-sharing companies become profitable?
By cracking the self driving puzzle. Whoever does will have a windfall of cash. The losers all end up flaming out
None of them are cracking the puzzle. Uber and Lyft are half-assing R&D. They are banking on buying the technology. But they don't have anything to offer other than an app.
Wait, im confused help me out here. How does the cars being self driving help with costs at all? Yeah sure you get rid of the driver's pay but what about wear and tear consumables such as oil, gas, brakes, tires, etc?
Different topic, but I do feel the days of every American driving on the road is a bit crazy. I just feel like public transportation in the states needs a tremendous overhaul...
Well right now there’s are only two large scale companies in the US. So at any time they could just decide to compete less on price and make money. The big friction in the market right now giving them some pricing power is the need for human drivers. That’s tough to build and sign up enough drivers to always have someone available.
Also supply for rides might be outpacing demand for rides. I saw some charts to indicate that a while ago which might give them some pricing power.
Long term with self driving I think the business goes the way of the airlines. The market will be big enough for their to be a dozen self driving Uber’s in the market and therefore no one has pricing power.
But to a great extent the problem with the business model is the same thing as airlines. Low barriers to entry.
they're not as crazily overvalued as wework, but they could absolutely stand on their own legs as a logistics company for taxi subcontractors, moving, one-off delivery, essentially just being an enterprise software solution for all things personal transportation
I don't see self driving happening within the next 10y, and their investors won't be that patient.
am I a buyer? fuck no, but there's at least a little something there. that said, I take cabs over uber whenever I have the chance
why cabs over uber?
instant access - if I'm in a big city, there are cabs everywhere, and very easy to hail
navigation - I rarely, if ever, have to tell a cabbie how to get somewhere
conversation - I do not, I repeat, do not want to hear an uber driver's story about how they got to where they are, their side hustle they're trying to recruit you for, or whatever else they feel like talking about. cabbies respect your privacy, and usually don't want to talk to you either. I once had an uber driver find out I was in PWM, then he proceeds to tell me how he's in PWM and is only doing uber because of a divorce and then starts giving me all sorts of advice on how to make it in the business (he's about 25 years my junior). my last cab ride was from my home airport, the cabbie lived around the corner from me, and after a 5 second conversation on the new car wash around the corner, the conversation stopped. he didn't wanna talk, and could see I didn't either (who does after a long West to East flight?), respect. I still have his business card.
cost - on short trips, uber is way cheaper, and in cities where you can use uber pool and aren't in a rush, can't be beat. but trips to/from airport, and other longer trips, cabs are the same price with a better experience.
professionalism - with the exception of some uber blacks and XLs, a nice cab is a better way to get around. if someone drives for a living, they care more than the dude who got fucked on his divorce cause he was banging his assistant and is now driving uber black because he has a 2005 mercury grand marquis and has to move all of his shit out of the way before you get in.
liability - hopefully never have to worry about this, but the stories of uber drivers getting in accidents, raping drunk college girls, etc., makes me a bit uneasy and I'd rather go with someone who's got more to lose if they fuck up.
finally - speed. I once got an impossible to get out of flight change and had to get from the Met to Newark for a flight that left in 45 minutes (this was on a Sunday, so not exactly quiet in NYC), a cabbie (who was about to go off duty) saw my urgency and I was at my gate with 10 minutes to spare. no uber could ever do that.
Can anyone here articulate the bull case for Uber? I would be interested to see the other side of the coin?
the same as it was for wework (from twitter, allegedly from an actual pitchbook)
This cracked me up... I would kill to see the pitchbook.
PayPal mafia member David Sacks did a post on Medium about pure tech vs tech enabled businesses which I think does a good job at explaining the rationale behind the irrational exuberance.
I've said before that I think Telsa ends up owning the high end self-driving experience and Google (or at least Google enabled) wins the low end.
Given their logistical chops, I could see Uber putting together the "just-in-time delivery layer" for the modern smart city - I spoke with the manager of a McDonald's near me and he said 57%(!) of his business now comes via UberEats, and in response he has changed the physical layout of the store.
Former CEO Travis Kalanick has invested heavily in cloud kitchens, so there should be something there...
Correct me if I’m wrong but don’t all of the food delivery services operate at a loss? If so, that can’t be the future of Uber.
lmfao, like Uber is going to beat Amazon or Walmart on "logistical chops".
The bull case on Uber looks like this:
I think that although TAM for ride sharing is huge, I don’t see how Uber is going to take the lions share of the market. They failed in China, SE Asia, India, and are getting clobbered by governments in Europe/NYC etc. Their product isn’t differentiated, taking a lyft or a didi is literally the exact same experience. It all comes down to cost, which isn’t necessarily lower, especially in developing countries. Their technology isn’t going to be better in self driving cars.
I can def see points 3 and 4 though
Is Uber the next WeWork?
Yes. Next question?
Uber's culture sucks and I am not a huge fan of the company. But I can say the same thing of Facebook. And Dara Khosrowshahi is no idiot, either.
What is going on right now is the end of the lockup period, combined with a garage sale for retail investors visavis Facebook in 2012.
I think Uber is going to bottom. I am not saying it will be the next Facebook. I am not saying I am certain it won't turn into WeWork or that you won't lose all of your money if you buy. I am just saying I've seen this chart a gazillion times on a recent IPO, and oftentimes the bottom is when the lockups expire.
I would watch the giants of the tech investing world on this.
I panned the IPO, but Uber has a lot going for it. Large cap tech just generally tends to survive, regardless of the chart.
Why are doing an F in the chat for Travis? He just secured like $400MM in funding for Cloud Kitchens.
he had to get POUNDED IN THE ASS by the Saudis to get that money though
Also I'm not a fan of the service as it stands.
Things are different if you're about to get ripped off on a $50 15 minute ride from Midtown to Hoboken, but generally there is no substitute for getting into a waiting cab. Further, raising your hand is a lot easier than going into some app, waiting for it to find a driver, and then telling you it will be seven minutes, only to find out the guy has no idea where he is going, and it taking 12 minutes for him to get to you as you cringe and watch him make three wrong turns.
There is definitely a place for Uber and Lyft. I don't see the cab industry going out of business. (I do see pricing staying a little more fair for a 15 minute ride across jurisdictions)
Frankly it's worth a 10-20% premium to be able to get (A) a professional and (B) a car right in front of you.
thank you IP! this works not just for NYC, but my lil tier 2 city (not NYC, DC, Chicago, LA, SF)
Yes, the economics don't work.
They either decrease driver pay, which they cant, or they increase price, which they cant.
If they decrease driver pay, they will lose drivers and there will be strikes.
If they increase prices, people will switch to LIFT or another competitor.
Lyft and competitors don't have a operational advantage and won't be able to offer cheaper costs than Uber. The only reason ridesharing is operating at huge losses is because they've been subsidizing rides. Eventually the capital to subsidize will run out and prices will reflect market rates more accurately (equally across the top ridesharing companies).
The real question to ask is, will consumers stop using ride hailing apps once prices increase? I think you'll see a decline in unit volume, but not enough for the ridesharing industry to disappear. Uber and Lyft will continue to exist and will be able do so profitably - for the most part, people love the experience of hailing a car through an app with the exact details of the ride already in place. Taxis are not going to become roaring success once the subsidies dissipate.
In terms of valuation, that's a tough nut to crack because it's extraordinarily difficult to estimate the financial profile of a non-hypergrowth Uber or Lyft. On top of that, there's the difficulty is estimating the potential to leverage their network of drivers for other businesses such as a logistics business.
Overall, it's not fair to compare WeWork to Uber - WeWork was a legitimate house of cards with outlandish capital expenditures. Uber invested heavily in growing its driver base into new markets and expanding the usage of ridesharing apps, which are now completely ingrained into how people think about short distance travel. WeWork was never truly innovative.
SoftBank loves to throw massive amounts of capital to companies to have them figure it out. Next thing you know the brand is massive but they are in the red every quarter.
That applies to both WeWork AND Uber. Wouldn't be surprised if their other investments go south too (some already are) . And now every VC fund 1 is trying to be massive and follow their strategy.
SoftBank itself is 6.5 billion in the red the last quarter (4.6 of that being WeWork) and yet Vision 2 fund is a "great idea". They are making a huge mess,
Another thing to add. I'm a HUGE self-driving car proponent, but after looking at these Teslas with what's approaching full self-driving, I actually am a little skeptical on the taxi model. I think suburban Americans will want to have their own self-driving vehicles. So I'm not convinced YET on the self-driving taxi model.
How could it be ? It already IPOed...
Last week my budy Travis sold $500 MM of stock quietly after the expiration of the lockup.
Smart !
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