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So, Uber: Bloomberg says that their Q3 net revenue is 1.7B, with a loss of 800M. That makes their overall profit margin approximately -50%. To say that this

So, Uber: Bloomberg says that their Q3 net revenue is 1.7B, with a loss of 800M. That makes their overall profit margin approximately -50%. To say that this is not a good sign is a significant understatement. Yearly figures would be about $5.5B in revenue, loss of about $3B, so expenditures of $8.5B. Let's say that $2B in expenditures are essentially waste or research projects with no very immediate prospect of return. That leaves it with a loss of -$1B on revenues of $5.5B. Any further expenditure cutting is going to result in loss of revenue as well -- it's super hard to see how it could conceivably get to +$1B in net profit. It's also super hard to see how it can really substantially increase its revenues without yet further cutting its margins. There are no large markets left for it to enter, so how does it entice more ridership except by cutting fares? But even if it did manage to get to $1B or $2B in profit, that's not enough. It's allegedly a $75B company! Uber stipulates that it shouldn't have to register its cars as self-driving, because they aren't advanced enough to meet the definition. It compares itself to Tesla: automated lane-keeping + adaptive cruise control. If we take Uber at its word, that is not a good sign for it to dig itself out of its terrible revenue situation via being first to market with automated vehicles. My guess: Uber's investors have realized that when the music stops, there are about half as many chairs as people. They're trying to get it to pull together some kind of IPO so they can dump at least some of their losses on public investors, and Uber is trying to desperately spin along the pixie dust stories until it can get itself into some shape to IPO. That means avoiding California's reporting requirements for driverless cars because only by claiming that they have a viable automated car program do they have some kind of story about how they might eventually make a profit. The sad thing is that there is almost certainly a very good, modestly-sized company in Uber that plugs along making $100M a year in profit on $1B in revenue as a taxi company. But they can't go back down to that company anymore.

hkmurakami 10y ago
Well the theory is that those new larger markets to enter will be in adjacent industries involving movement of nonhuman goods.
- aetherson 10y ago
  They've really de-emphasized this story over the last two years, though. You used to hear that they were a "logistics company," but they sure haven't been banging that drum, lately. Perhaps because it was always ludicrous. Uber's underlying technology is not complicated, it's not hard to build an app that connects buyers to drivers -- they have no durable competitive advantage there. They do have large network of drivers that they could potentially tap into, but those drivers are driving smallish sedans, not delivery trucks. They aren't necessarily super keen on double parking, getting out, and doing deliveries. They are probably 1/10th as efficient as a traditional UPS or Fedex driver in terms of cost per package delivered. Now, could that excess capacity still soak up a little additional money? Sure. If Uber needed to bump up their profit margins by 1-2%, there might be a viable play in adding package delivery. But increasing their profit margins by 20-80%? Hahaha no. If Amazon ever really needs to have a distributed driver network, they'll clone the Uber app and set the whole thing up themselves, not work to prop up Uber's absurd market cap by overpaying for delivery. I know that Amazon has looked into this -- I think they've just decided that there's no money there. If there's no money in this for Amazon, why would we imagine there is money in this for anyone else?
  - beastcoast 10y ago
    They already have: https://flex.amazon.com https://flex.amazon.com
codecamper 10y ago
p/e on these sorts of "gonna take over the world" sort of companies can be astronomical. certainly more than 35. i wouldn't put much faith in uber's numbers now. they aren't trying to make profit. they are trying to grab marketshare.
- tyre 10y ago
  GP's example of a p/e of 35 assumes that they turn around from losing $3.5bn/yr to making $2bn in profit per year _and not altering their valuation_. Not only that, but, assumedly to do so, they would have to switch away from high-growth mode to profit-mode. That's no longer deserving of a "gonna take over the world" p/e.
fullshark 10y ago
I think Uber's investors still are happy with how things are going. If self-driving car tech stalls or they start to lose market share they will get pissed. That's basically the strategy IMO, own the ride hailing market when self-driving tech matures. Seems doable to me but with a ton of risk factors involved.
- aetherson 10y ago
  Hope self-driving tech doesn't take long to mature! Even with the amount of money they've raised, they can't stick around for five years losing $3B per year.
  - Hydraulix989 10y ago
    Self-driving cars will take at least 5 years (probably 10-20 years) to mature. Right now, Uber is testing their equivalent to Tesla Autopilot (with all of its flakiness and a much needed human backup as well).
  - stale2002 10y ago
    Uber is worth 75 Billion dollars and investors lining up for any chance they can get to invest. Its runway is NOT 3 years. It is 30 years.
    - aetherson 10y ago
      It doesn't have $75B, that's its market cap. Crunchbase claims it's raised $8.5B. We'll see if investors continue to be as enthusiastic about investing. My bet is "no," though obviously I could be wrong.
api 10y ago
They could become profitable if they exited unprofitable markets and stopped most R&D, focusing on only the profitable parts of their business. They're buying growth and investing heavily in R&D because they want to take over a lot more than just Taxi services.
user5994461 10y ago
> There are no large markets left for it to enter, so how does it entice more ridership except by cutting fares? Uber is a novelty. There are many people worldwide that don't know about it and are not using it... yet.
- aetherson 10y ago
  Depending on your definition of "many," sure. I would argue that the unaddressed market for Uber tends to have good reasons it's unaddressed. It's either poor (like much of the world), or in areas that are very spread out out (like much of the world), or in areas legally opposed to Uber (like, at least, China), or has little need of cars, or some combination of these things. This makes it unlikely that Uber will greatly increase its ridership without worsening its margins. Particularly, I just don't see how Uber can massively increase its ridership while increasing its margins gigantically. Not without some kind of technological game changer. And for other reasons, some of which I detail in my original post, I don't believe that it's going to be first to market with driverless tech that proves to be a game changer.
  - user5994461 10y ago
    Give time for word of mouths, to spread in non-English markets (ie. EU), to people who are not 20 year-old-grew with-smartphone-type. Everyone who doesn't have a car could use a Uber at times. The struggle in some places (e.g. China) is real but irrelevant. Should focus on the sizable markets where there is a chance, given time and some efforts (e.g. localization).
    - sundaeofshock 10y ago
      So much to address here. The word of mouth has spread in the EU; Uber already has a crappy reputation there and are not able to steamroll over the regulators there like they have in the US. Maybe I'm mis-reading something, but it seems you are implying that Uber has conquered the oh-so-tech-savy 20-something group, and now they have plenty of room to scale in the stodgy 30, 40, 50, 60, 70 age range. Nice theory, but sort of ignoring the history of Uber. Uber started as a convenient, but expensive, alternative to taxis. All Uber cars at the beginning where Uber Black and the vast majority of users were folks who could afford to drop the cash; lots of people in the 40s and 50s (including me). Uber introduced cheaper options to attract more price sensitive and younger riders. So, based on that, I don't think there is some untapped group of old folks for Uber to go after. China irrelevant? I think most business owners would disagree with that. On an unrelated note... Despite what is implied here, that 20 year-old is no more tech savvy then I; indeed, they are most likely less tech savvy. Hell, I built my first computer when that 20 year-old was just an itching in his daddy's pants.
Theodores 10y ago
I think people want personal 'self driving' cars for themselves rather than Uber's 'automated' cars. Therefore the pie beyond the taxi service is just not there to be taken. Soon plugs for electric cars will be ubiquitous and just that, a simple plug. There will be no charging station, an app in the car or on your phone will do the rest. For economic reasons plugs will be installed, street after street much like how broadband fiber was put down. Maybe lamp posts or other infrastructure will be used too. Rather than the car just take power the agreement will be to supply power too, therefore electric cars will smooth out demand with owners paying an 'eco' tariff and their car providing them with peak demand power. When this happens and people get 'free miles' for being there for the grid, the buy in for personal ownership will be compelling. Clever that the self driving cars are, all of it is just code and printed circuit boards, self-driving will be as ubiquitous as 'sat nav' today and complained about in much the same way. People will still want their personal space with their personal junk and, if there are 'free miles' for helping out power the grid, even if they are as useless as '5000 free texts', the lease/utility deal of the personally owned car will lock people in. Before the mobile phone business settled there were business models such as 'Rabbit' where they imagined people would stop at places that showed the Rabbit sign and then make a phone call, to move on when they had finished the call. It made sense to thousands of people who put up the base stations, it made sense to investors but not to customers. I think that Uber are over-presumptive in how people will change for them and their business model. I don't think people will. They will get deeper into car ownership because their car is tied into their electricity and other utility bills. Self driving will just become a feature taken for granted as the new 'ABS' and people will adapt to it as they will adapt to plugging in - not that difficult. People aren't just going to revolve their life around Uber at the expense of personal car ownership.

hkmurakami 10y ago

Well the theory is that those new larger markets to enter will be in adjacent industries involving movement of nonhuman goods.

aetherson 10y ago
They've really de-emphasized this story over the last two years, though. You used to hear that they were a "logistics company," but they sure haven't been banging that drum, lately. Perhaps because it was always ludicrous. Uber's underlying technology is not complicated, it's not hard to build an app that connects buyers to drivers -- they have no durable competitive advantage there. They do have large network of drivers that they could potentially tap into, but those drivers are driving smallish sedans, not delivery trucks. They aren't necessarily super keen on double parking, getting out, and doing deliveries. They are probably 1/10th as efficient as a traditional UPS or Fedex driver in terms of cost per package delivered. Now, could that excess capacity still soak up a little additional money? Sure. If Uber needed to bump up their profit margins by 1-2%, there might be a viable play in adding package delivery. But increasing their profit margins by 20-80%? Hahaha no. If Amazon ever really needs to have a distributed driver network, they'll clone the Uber app and set the whole thing up themselves, not work to prop up Uber's absurd market cap by overpaying for delivery. I know that Amazon has looked into this -- I think they've just decided that there's no money there. If there's no money in this for Amazon, why would we imagine there is money in this for anyone else?
- beastcoast 10y ago
  They already have: https://flex.amazon.com https://flex.amazon.com

codecamper 10y ago

p/e on these sorts of "gonna take over the world" sort of companies can be astronomical. certainly more than 35. i wouldn't put much faith in uber's numbers now. they aren't trying to make profit. they are trying to grab marketshare.

tyre 10y ago
GP's example of a p/e of 35 assumes that they turn around from losing $3.5bn/yr to making $2bn in profit per year _and not altering their valuation_. Not only that, but, assumedly to do so, they would have to switch away from high-growth mode to profit-mode. That's no longer deserving of a "gonna take over the world" p/e.

fullshark 10y ago

I think Uber's investors still are happy with how things are going. If self-driving car tech stalls or they start to lose market share they will get pissed. That's basically the strategy IMO, own the ride hailing market when self-driving tech matures. Seems doable to me but with a ton of risk factors involved.

aetherson 10y ago
Hope self-driving tech doesn't take long to mature! Even with the amount of money they've raised, they can't stick around for five years losing $3B per year.
- Hydraulix989 10y ago
  Self-driving cars will take at least 5 years (probably 10-20 years) to mature. Right now, Uber is testing their equivalent to Tesla Autopilot (with all of its flakiness and a much needed human backup as well).
- stale2002 10y ago
  Uber is worth 75 Billion dollars and investors lining up for any chance they can get to invest. Its runway is NOT 3 years. It is 30 years.
  - aetherson 10y ago
    It doesn't have $75B, that's its market cap. Crunchbase claims it's raised $8.5B. We'll see if investors continue to be as enthusiastic about investing. My bet is "no," though obviously I could be wrong.

api 10y ago

They could become profitable if they exited unprofitable markets and stopped most R&D, focusing on only the profitable parts of their business. They're buying growth and investing heavily in R&D because they want to take over a lot more than just Taxi services.

user5994461 10y ago

> There are no large markets left for it to enter, so how does it entice more ridership except by cutting fares? Uber is a novelty. There are many people worldwide that don't know about it and are not using it... yet.

aetherson 10y ago
Depending on your definition of "many," sure. I would argue that the unaddressed market for Uber tends to have good reasons it's unaddressed. It's either poor (like much of the world), or in areas that are very spread out out (like much of the world), or in areas legally opposed to Uber (like, at least, China), or has little need of cars, or some combination of these things. This makes it unlikely that Uber will greatly increase its ridership without worsening its margins. Particularly, I just don't see how Uber can massively increase its ridership while increasing its margins gigantically. Not without some kind of technological game changer. And for other reasons, some of which I detail in my original post, I don't believe that it's going to be first to market with driverless tech that proves to be a game changer.
- user5994461 10y ago
  Give time for word of mouths, to spread in non-English markets (ie. EU), to people who are not 20 year-old-grew with-smartphone-type. Everyone who doesn't have a car could use a Uber at times. The struggle in some places (e.g. China) is real but irrelevant. Should focus on the sizable markets where there is a chance, given time and some efforts (e.g. localization).
  - sundaeofshock 10y ago
    So much to address here. The word of mouth has spread in the EU; Uber already has a crappy reputation there and are not able to steamroll over the regulators there like they have in the US. Maybe I'm mis-reading something, but it seems you are implying that Uber has conquered the oh-so-tech-savy 20-something group, and now they have plenty of room to scale in the stodgy 30, 40, 50, 60, 70 age range. Nice theory, but sort of ignoring the history of Uber. Uber started as a convenient, but expensive, alternative to taxis. All Uber cars at the beginning where Uber Black and the vast majority of users were folks who could afford to drop the cash; lots of people in the 40s and 50s (including me). Uber introduced cheaper options to attract more price sensitive and younger riders. So, based on that, I don't think there is some untapped group of old folks for Uber to go after. China irrelevant? I think most business owners would disagree with that. On an unrelated note... Despite what is implied here, that 20 year-old is no more tech savvy then I; indeed, they are most likely less tech savvy. Hell, I built my first computer when that 20 year-old was just an itching in his daddy's pants.

Theodores 10y ago

I think people want personal 'self driving' cars for themselves rather than Uber's 'automated' cars. Therefore the pie beyond the taxi service is just not there to be taken. Soon plugs for electric cars will be ubiquitous and just that, a simple plug. There will be no charging station, an app in the car or on your phone will do the rest. For economic reasons plugs will be installed, street after street much like how broadband fiber was put down. Maybe lamp posts or other infrastructure will be used too. Rather than the car just take power the agreement will be to supply power too, therefore electric cars will smooth out demand with owners paying an 'eco' tariff and their car providing them with peak demand power. When this happens and people get 'free miles' for being there for the grid, the buy in for personal ownership will be compelling. Clever that the self driving cars are, all of it is just code and printed circuit boards, self-driving will be as ubiquitous as 'sat nav' today and complained about in much the same way. People will still want their personal space with their personal junk and, if there are 'free miles' for helping out power the grid, even if they are as useless as '5000 free texts', the lease/utility deal of the personally owned car will lock people in. Before the mobile phone business settled there were business models such as 'Rabbit' where they imagined people would stop at places that showed the Rabbit sign and then make a phone call, to move on when they had finished the call. It made sense to thousands of people who put up the base stations, it made sense to investors but not to customers. I think that Uber are over-presumptive in how people will change for them and their business model. I don't think people will. They will get deeper into car ownership because their car is tied into their electricity and other utility bills. Self driving will just become a feature taken for granted as the new 'ABS' and people will adapt to it as they will adapt to plugging in - not that difficult. People aren't just going to revolve their life around Uber at the expense of personal car ownership.