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The sentiment on UBER recently is that they are only surviving by subsidizing rides and are out of control / there's no future business there. But that is not

The sentiment on UBER recently is that they are only surviving by subsidizing rides and are out of control / there's no future business there. But that is not an accurate portrayal, here's what's going on when you look at their un-editorialized results (1): - Headlines have portrayed UBER as losing $5b this quarter. This is the easy one to address as this article touches on - UBER paid out almost $4b in stock based compensation (one time, due to IPO) that inflated their loss number. The more accurate portrayal is that UBER burned ~$1.2b this quarter on operations. - Of their remaining $1.2b operating loss almost 50% of that is from UBER eats subsidies. They paid $544m more to drivers to deliver food than they took in. Why? (a) It is their fastest growing (by %) division (2) It's arguably the most valuable battleground in logistics - developing a "last mile" delivery network at scale. - Their core business - ridesharing - has improved their gross margin and unit economics quarter-over-quarter to the point that the discounting is almost non-material (less than $22m total worldwide this quarter, representing less than 1/2 a percent of total ride sharing revenue). - They have >25,000 employees and >50% of those are international in new markets that require heavy HR spending. Their move to clip 400 marketing employees (25% of entire division) last month implies the CEO has confidence that there is a lot of fat in employee base. - Add to that other losses in their "other bets" which is almost certainly their freight brokering network at -$50m, and the losses appear to be diminishing. (1) https://investor.uber.com/news-events/news/press-release-details/2019/Uber-Reports-Second-Quarter-2019-Results/default.aspx https://investor.uber.com/news-events/news/press-release-det...

leannekim 7y ago
Ok so there is a backstory behind each piece of bad news. Still, tons of bad news is still a ton of bad news. Most successful businesses should have a string of good news. Especially after being in business for a decade.
- badfrog 7y ago
  > Still, tons of bad news is still a ton of bad news. I think the point is that it's not bad news. Losing money can be good for a company if it's being done in a way that leads to long-term growth. Amazon didn't have a profitable quarter for ~7 years after its IPO: https://www.theatlas.com/charts/BJjuqbWLz https://www.theatlas.com/charts/BJjuqbWLz
  - leannekim 7y ago
    > Losing money can be good for a company if it's being done in a way that leads to long-term growth. I guess. But being profitable while growing is better.
  - Barrin92 7y ago
    Amazon also actually owned assets and supply chains instead of owning nothing apart from an app on a phone that countless of competitors have already copied.
cma 7y ago
> - The easy one, that this article touches on, is that they paid out almost $4b in stock compensation that inflated the loss number to "$5 billion" that I see everywhere, the actual number is they burned ~$1.2b this quarter. Why would you value their stock at 0 to get that 'actual' number?
- JumpCrisscross 7y ago
  > Why would you value their stock at 0 to get that 'actual' number? It's a one-time non-cash expense. Allocating to a single quarter is an accounting convenience. Stock comp represents an economic cost--shareholders are diluted by it. But allocating it now or then, here or there, is arbitrary. As such, when making longitudinal statements (e.g. is Uber's economic position improving or receding), stripping out such items is standard.
  - cma 7y ago
    As long as it was prorated to previous quarters in the previous evaluations I guess that is fine.
  - foobiekr 7y ago
    Well, it's not really a one-time cost. It's a cost which will recur in pretty much every quarter with a one-tome magnitude.
    - HeavenFox 7y ago
      While I don't know the specifics about UBER, some companies have RSU that vest only upon liquidation event, eg an IPO, which would inflate the number for that quarter, since you're effectively paying out all stock compensation owed to employees all at once.
      - foobiekr 7y ago
        Yes, that’s the magnitude part. But Uber relies very, very heavily in RSU compensation and those expenses will show up every quarter going forward.
cannonedhamster 7y ago
So am I understanding you're saying that even in their best performing division where they drastically underpay they are losing $22m a quarter and this is good news? I am honestly asking, as I'm not super familiar with their finances.
- aresant 7y ago
  1) Note that 80%+ of IPOs last year were for companies that were unprofitable - why does the market tolerate this? Shorthand - because many companies IPO to raise capital to build towards profit via scale, capital investment, etc. 2) A way to start understanding this is to understand the benchmark comparison for public market equities is Price to Earnings (PE) ratio. 3) Trying to judge an unprofitable company and develop a P/E that you can then resolve against other similar profitable companies requires one to look at trends, not absolutes. Uber substantially improved that single metric - $22m - YOY while still scaling. If you believe that trend will continue over time, they have a going concern in their core business. Do that for every line item and you can fudge a forward P/E. 4) incidentally the IPO “roadshow” is where the company goes around to institutional investors and bankers (who then communicate w their high net worth retail investors) and tell the story of the trend and roadmap to building a high value sustainable biz. 5) A decent article primer about the current market, why investors are ok w/low or no profit, etc is here -> https://theweek.com/articles/835726/reason-many-unprofitable-companies-are-going-public https://theweek.com/articles/835726/reason-many-unprofitable... - - - -
  - admax88q 7y ago
    > why does the market tolerate this? Because the market is insane. Uber has yet to prove that their core business can actually make money. A large part of the appeal of Uber is that they're cheap, nobody has proved that customers are willing to pay enough for an Uber for them to turn a profit. I'm legitimately surprised that they're _still_ not making profit on ride sharing. I just kind of assumed that the insanity had stopped. Running at a loss to gain marketshare is a fine and reasonable strategy if you think you actually have a plan to make money later, so far Uber's plan is to spend even more money expanding to other related markets hoping for profitability. I would never buy shares in Uber.
futureastronaut 7y ago
> (2) It's arguably the most valuable battleground in logistics - developing a "last mile" delivery network at scale. How is Uber Eats any different from the many other operations strapping boxes to the backs of bicyclists? I don't see anything innovative about Uber's last mile logistics compared to Amazon (who aren't even that great) for instance. It sounds more like an excuse Uber's leadership would make as they desperately search for profitable business.
- wmf 7y ago
  In theory there may be economies of scale in food delivery if a single driver can deliver multiple orders from the same restaurant. Uber Eats already offers free/cheap delivery when there's already an order out to a given restaurant.
  - abvdasker 7y ago
    It's not theoretical. Uber Eats already does single-origin, multiple-destination batching to squeeze efficiency out of their network (I have a friend who works there). Afaik there are other kinds of batching they have not yet implemented.
- threeseed 7y ago
  Uber Eats like Uber ride sharing are marketplace businesses. In order for a new entrant to come in they need to grow both businesses and consumers at the same time. Which is hard with no competitors. But very hard with cash rich companies like Uber trying to stop you. We saw this all play out in Australia where we initially had Foodora and Deliveroo. Then Uber joined with aggressive marketing and pricing. They pushed Foodora out and the number of businesses in Deliveroo is dropping. It is going to be a winner take all situation. At which point prices will rise and the profits will roll in.
  - hug 7y ago
    It's worth pointing out that in my area of Melbourne the number of places available on any of the platforms is rising, but the platform that is increasing the quickest in my area is Menulog. Uber Eats just changed their delivery price to be based on distance, which has vastly increased the average delivery fee, and the prices on Uber Eats are inflated over every other delivery platform because of the cut they take. And in Melbourne CBD, by far the largest number of bikes I see are delivering for Easi. Not sure that the market is actually struggling here.
freyr 7y ago
> They paid $544m more to drivers to deliver food than they took in. Why? Maybe it's just not a very profitable business to send some guy in a Prius across town to pick up a burrito, then drive back across town to deliver said burrito. I've tried it a few times and it took an inexplicably long time to get my order, and the food arrived cold and unappetizing. Never again.
- leannekim 7y ago
  Actually that IS a very profitable business, that is if you can charge people way more than most people are willing to pay.
  - draw_down 7y ago
    Read that again.
- gchamonlive 7y ago
  Next time try selecting nearer restaurants. Their delivery fee is lower and they arrive quicker and in a better state. If there are none then there isn't much you can do, you have to trade off freshly cooked food for the convenience of having it delivered to you
  - batiudrami 7y ago
    Honestly I do not get the Uber Eats hype. If I'm sober enough to drive I can get the same food, fresh and on a plate for cheaper. If I'm drunk I'm happy with a pizza delievered by Domino's. Getting food delivered slowly, cold and squashed into plastic containers is an awful experience, and it ends up costing me thirty bucks.
    - chillacy 7y ago
      If on-demand delivery scaled to the maturity of package delivery (like UPS/Fedex) I can imagine Dominos one day replacing their delivery operations with the future version of Uber Eats.
zepequeno 7y ago
Top comment is an UBER shill who uses 90% of his time to come here and defend shitty corporate practices. Imagine being so delusionally attached to your investment that you come here to justify these unprofitable Silicon Valley pyramid schemes. I'm happy for you dude, you probably think of yourself as a genius progressive "investor" that sees what everyone else does not. Before you fall off your high horse just make sure to look at the mirror
enlyth 7y ago
It's nice that you've made this high effort post to dispute all the "haters" but I'm still confused as to how I can order food for a 5% markup, while some driver gets paid for 45+ minutes of his time, gas and car maintenance to deliver it to me. Something doesn't add up here, and your uppity attitude just makes me think you're heavily invested.
- oldmanhorton 7y ago
  Devils advocate: they could keep charging a 5% total markup to the customer but once they're dominant they can start making deals with restaurants under the guise of "if it weren't for us, you'd never get this order to begin with" to get a percentage of the regular meal cost? Seems kinda shitty from a moral standpoint but I agree that the current up charge isn't sustainable.
  - enlyth 7y ago
    I appreciate the devil's advocate. To be frank, I just made up the 5% figure, it's based on my observations looking at Uber Eats, Deliveroo, and similar apps. Though the theme seems to be the same, a lot of times you'll see they actually match the in store prices, which makes absolute no sense to me. I had an experience with a Deliveroo driver, who told me the restaurant took an hour to make the food despite saying it was ready and that's why the delivery was almost two hours late. He ended up waiting for one hour at the restaurant for them to make my order. He was asking me to make a complaint against the restaurant because there's not much he can do. My small order for a single person, costing £7.50, took two hours out of this person's life. Now I'll admit I don't know how the system works and whether the people get paid to wait around doing nothing but I very much doubt it, and actually felt bad that I made some person trying to make a living wait an hour at a restaurant so he could use his own vehicle to deliver a burrito to me, possibly at a loss. But yeah everything's fine, let's keep going
    - akho 7y ago
      Why doesn’t matching in-store prices make sense to you? You are not taking up valuable table space, so it ends up cheaper for the restaurant. The delivery service is certainly taking a share of that benefit.
JMTQp8lwXL 7y ago
Last miling food with drones sounds more feasible, but I don't think that requires $500m in investment.
- dodobirdlord 7y ago
  > but I don't think that requires $500m in investment Honestly, $500m sounds like a wild underestimate for what it would take to get last mile drone delivery working. Remember that this is something that's currently (mostly) illegal! There's clearly a lot of work to be done.
  - JMTQp8lwXL 7y ago
    I don't think the fact that it's mostly illegal would discourage Uber. But compare it to Uber Eats: those driver subsidies, they're never going to get that money back. A drone last-mile R&D budget could at least lead to something. Even if it's imperfect and still requires some labor, maybe it vastly cuts cost. E.g., drivers are assigned drones, and they go from the driver's car, parked on the street of the destination, and fly to the front door to drop the food off, so drivers get more throughput while running their deliveries.
- GVIrish 7y ago
  That is absolutely not feasible right now. To start with, many cities have no fly zones around their airports that already cut down on who you can serve. Then there's the fact that you need a sizable drone to carry a payload big enough for meals. The bigger the drone, the bigger the landing zone you'll need. Flight times are heavily limited by batteries which means you'd have to swap batteries frequently. Then there's the fact that you'd need someone to pilot them, at least for the landing part. On top of that drones would be heavily limited by the weather. And all that is not even getting into liability and FAA regulations. There is no way Uber or anyone else is gonna be air dropping food deliveries without charging a pretty big fee and even then there'd be a lot of limitations.
  - djhn 7y ago
    Google (Alphabet subsidiary Wing) is already operational with their drone delivery service in Australia and Finland. The drones don't land, they lower the order. Available food payload is 1.2kg for now - which is on the "slightly limiting" for a dinner for 2 people, but many cuisines can work quite well.
autokad 7y ago
I keep hearing about this 'uber didn't lose the money' argument, but this also coincides with a hiring freeze. this comes at a time when talent for engineers is extremely hot. if everything was growing as you say, then it wouldn't make sense to start throwing things overboard
- hobofan 7y ago
  That doesn't automatically mean that they need to hire more engineers. Maybe they also have a reasonable amount of them, and since the older products have matured their focus can be shifted to the newer products instead of hiring new people for new products.
lm28469 7y ago
At the end of the day it's still a 10 years old company that has never made money. Unless they pull something similar to Amazon when they released aws I don't see that changing. (Like engineering their own self driving car, but we all know that'll come too late to save them)
mlthoughts2018 7y ago
As far as I can tell, your comment only makes the case for the subsidy problem at Uber stronger by arguing that the subsidy problem is still generating growing losses even after accounting for IPO-related stock compensation costs. This has been a highly analyzed criticism of Uber since day one. See the Naked Capitalism series on it. It boils down to the fundamental economics of taxi businesses and the intrinsic costs of ride supply in illiquid ride markets like suburbs.

leannekim 7y ago

Ok so there is a backstory behind each piece of bad news. Still, tons of bad news is still a ton of bad news. Most successful businesses should have a string of good news. Especially after being in business for a decade.

badfrog 7y ago
> Still, tons of bad news is still a ton of bad news. I think the point is that it's not bad news. Losing money can be good for a company if it's being done in a way that leads to long-term growth. Amazon didn't have a profitable quarter for ~7 years after its IPO: https://www.theatlas.com/charts/BJjuqbWLz https://www.theatlas.com/charts/BJjuqbWLz
- leannekim 7y ago
  > Losing money can be good for a company if it's being done in a way that leads to long-term growth. I guess. But being profitable while growing is better.
- Barrin92 7y ago
  Amazon also actually owned assets and supply chains instead of owning nothing apart from an app on a phone that countless of competitors have already copied.

cma 7y ago

> - The easy one, that this article touches on, is that they paid out almost $4b in stock compensation that inflated the loss number to "$5 billion" that I see everywhere, the actual number is they burned ~$1.2b this quarter. Why would you value their stock at 0 to get that 'actual' number?

JumpCrisscross 7y ago
> Why would you value their stock at 0 to get that 'actual' number? It's a one-time non-cash expense. Allocating to a single quarter is an accounting convenience. Stock comp represents an economic cost--shareholders are diluted by it. But allocating it now or then, here or there, is arbitrary. As such, when making longitudinal statements (e.g. is Uber's economic position improving or receding), stripping out such items is standard.
- cma 7y ago
  As long as it was prorated to previous quarters in the previous evaluations I guess that is fine.
- foobiekr 7y ago
  Well, it's not really a one-time cost. It's a cost which will recur in pretty much every quarter with a one-tome magnitude.
  - HeavenFox 7y ago
    While I don't know the specifics about UBER, some companies have RSU that vest only upon liquidation event, eg an IPO, which would inflate the number for that quarter, since you're effectively paying out all stock compensation owed to employees all at once.
    - foobiekr 7y ago
      Yes, that’s the magnitude part. But Uber relies very, very heavily in RSU compensation and those expenses will show up every quarter going forward.

cannonedhamster 7y ago

So am I understanding you're saying that even in their best performing division where they drastically underpay they are losing $22m a quarter and this is good news? I am honestly asking, as I'm not super familiar with their finances.

aresant 7y ago
1) Note that 80%+ of IPOs last year were for companies that were unprofitable - why does the market tolerate this? Shorthand - because many companies IPO to raise capital to build towards profit via scale, capital investment, etc. 2) A way to start understanding this is to understand the benchmark comparison for public market equities is Price to Earnings (PE) ratio. 3) Trying to judge an unprofitable company and develop a P/E that you can then resolve against other similar profitable companies requires one to look at trends, not absolutes. Uber substantially improved that single metric - $22m - YOY while still scaling. If you believe that trend will continue over time, they have a going concern in their core business. Do that for every line item and you can fudge a forward P/E. 4) incidentally the IPO “roadshow” is where the company goes around to institutional investors and bankers (who then communicate w their high net worth retail investors) and tell the story of the trend and roadmap to building a high value sustainable biz. 5) A decent article primer about the current market, why investors are ok w/low or no profit, etc is here -> https://theweek.com/articles/835726/reason-many-unprofitable-companies-are-going-public https://theweek.com/articles/835726/reason-many-unprofitable... - - - -
- admax88q 7y ago
  > why does the market tolerate this? Because the market is insane. Uber has yet to prove that their core business can actually make money. A large part of the appeal of Uber is that they're cheap, nobody has proved that customers are willing to pay enough for an Uber for them to turn a profit. I'm legitimately surprised that they're _still_ not making profit on ride sharing. I just kind of assumed that the insanity had stopped. Running at a loss to gain marketshare is a fine and reasonable strategy if you think you actually have a plan to make money later, so far Uber's plan is to spend even more money expanding to other related markets hoping for profitability. I would never buy shares in Uber.

futureastronaut 7y ago

> (2) It's arguably the most valuable battleground in logistics - developing a "last mile" delivery network at scale. How is Uber Eats any different from the many other operations strapping boxes to the backs of bicyclists? I don't see anything innovative about Uber's last mile logistics compared to Amazon (who aren't even that great) for instance. It sounds more like an excuse Uber's leadership would make as they desperately search for profitable business.

wmf 7y ago
In theory there may be economies of scale in food delivery if a single driver can deliver multiple orders from the same restaurant. Uber Eats already offers free/cheap delivery when there's already an order out to a given restaurant.
- abvdasker 7y ago
  It's not theoretical. Uber Eats already does single-origin, multiple-destination batching to squeeze efficiency out of their network (I have a friend who works there). Afaik there are other kinds of batching they have not yet implemented.
threeseed 7y ago
Uber Eats like Uber ride sharing are marketplace businesses. In order for a new entrant to come in they need to grow both businesses and consumers at the same time. Which is hard with no competitors. But very hard with cash rich companies like Uber trying to stop you. We saw this all play out in Australia where we initially had Foodora and Deliveroo. Then Uber joined with aggressive marketing and pricing. They pushed Foodora out and the number of businesses in Deliveroo is dropping. It is going to be a winner take all situation. At which point prices will rise and the profits will roll in.
- hug 7y ago
  It's worth pointing out that in my area of Melbourne the number of places available on any of the platforms is rising, but the platform that is increasing the quickest in my area is Menulog. Uber Eats just changed their delivery price to be based on distance, which has vastly increased the average delivery fee, and the prices on Uber Eats are inflated over every other delivery platform because of the cut they take. And in Melbourne CBD, by far the largest number of bikes I see are delivering for Easi. Not sure that the market is actually struggling here.

freyr 7y ago

> They paid $544m more to drivers to deliver food than they took in. Why? Maybe it's just not a very profitable business to send some guy in a Prius across town to pick up a burrito, then drive back across town to deliver said burrito. I've tried it a few times and it took an inexplicably long time to get my order, and the food arrived cold and unappetizing. Never again.

leannekim 7y ago
Actually that IS a very profitable business, that is if you can charge people way more than most people are willing to pay.
- draw_down 7y ago
  Read that again.
gchamonlive 7y ago
Next time try selecting nearer restaurants. Their delivery fee is lower and they arrive quicker and in a better state. If there are none then there isn't much you can do, you have to trade off freshly cooked food for the convenience of having it delivered to you
- batiudrami 7y ago
  Honestly I do not get the Uber Eats hype. If I'm sober enough to drive I can get the same food, fresh and on a plate for cheaper. If I'm drunk I'm happy with a pizza delievered by Domino's. Getting food delivered slowly, cold and squashed into plastic containers is an awful experience, and it ends up costing me thirty bucks.
  - chillacy 7y ago
    If on-demand delivery scaled to the maturity of package delivery (like UPS/Fedex) I can imagine Dominos one day replacing their delivery operations with the future version of Uber Eats.

zepequeno 7y ago

Top comment is an UBER shill who uses 90% of his time to come here and defend shitty corporate practices. Imagine being so delusionally attached to your investment that you come here to justify these unprofitable Silicon Valley pyramid schemes. I'm happy for you dude, you probably think of yourself as a genius progressive "investor" that sees what everyone else does not. Before you fall off your high horse just make sure to look at the mirror

enlyth 7y ago

It's nice that you've made this high effort post to dispute all the "haters" but I'm still confused as to how I can order food for a 5% markup, while some driver gets paid for 45+ minutes of his time, gas and car maintenance to deliver it to me. Something doesn't add up here, and your uppity attitude just makes me think you're heavily invested.

oldmanhorton 7y ago
Devils advocate: they could keep charging a 5% total markup to the customer but once they're dominant they can start making deals with restaurants under the guise of "if it weren't for us, you'd never get this order to begin with" to get a percentage of the regular meal cost? Seems kinda shitty from a moral standpoint but I agree that the current up charge isn't sustainable.
- enlyth 7y ago
  I appreciate the devil's advocate. To be frank, I just made up the 5% figure, it's based on my observations looking at Uber Eats, Deliveroo, and similar apps. Though the theme seems to be the same, a lot of times you'll see they actually match the in store prices, which makes absolute no sense to me. I had an experience with a Deliveroo driver, who told me the restaurant took an hour to make the food despite saying it was ready and that's why the delivery was almost two hours late. He ended up waiting for one hour at the restaurant for them to make my order. He was asking me to make a complaint against the restaurant because there's not much he can do. My small order for a single person, costing £7.50, took two hours out of this person's life. Now I'll admit I don't know how the system works and whether the people get paid to wait around doing nothing but I very much doubt it, and actually felt bad that I made some person trying to make a living wait an hour at a restaurant so he could use his own vehicle to deliver a burrito to me, possibly at a loss. But yeah everything's fine, let's keep going
  - akho 7y ago
    Why doesn’t matching in-store prices make sense to you? You are not taking up valuable table space, so it ends up cheaper for the restaurant. The delivery service is certainly taking a share of that benefit.

JMTQp8lwXL 7y ago

Last miling food with drones sounds more feasible, but I don't think that requires $500m in investment.

dodobirdlord 7y ago
> but I don't think that requires $500m in investment Honestly, $500m sounds like a wild underestimate for what it would take to get last mile drone delivery working. Remember that this is something that's currently (mostly) illegal! There's clearly a lot of work to be done.
- JMTQp8lwXL 7y ago
  I don't think the fact that it's mostly illegal would discourage Uber. But compare it to Uber Eats: those driver subsidies, they're never going to get that money back. A drone last-mile R&D budget could at least lead to something. Even if it's imperfect and still requires some labor, maybe it vastly cuts cost. E.g., drivers are assigned drones, and they go from the driver's car, parked on the street of the destination, and fly to the front door to drop the food off, so drivers get more throughput while running their deliveries.
GVIrish 7y ago
That is absolutely not feasible right now. To start with, many cities have no fly zones around their airports that already cut down on who you can serve. Then there's the fact that you need a sizable drone to carry a payload big enough for meals. The bigger the drone, the bigger the landing zone you'll need. Flight times are heavily limited by batteries which means you'd have to swap batteries frequently. Then there's the fact that you'd need someone to pilot them, at least for the landing part. On top of that drones would be heavily limited by the weather. And all that is not even getting into liability and FAA regulations. There is no way Uber or anyone else is gonna be air dropping food deliveries without charging a pretty big fee and even then there'd be a lot of limitations.
- djhn 7y ago
  Google (Alphabet subsidiary Wing) is already operational with their drone delivery service in Australia and Finland. The drones don't land, they lower the order. Available food payload is 1.2kg for now - which is on the "slightly limiting" for a dinner for 2 people, but many cuisines can work quite well.

autokad 7y ago

I keep hearing about this 'uber didn't lose the money' argument, but this also coincides with a hiring freeze. this comes at a time when talent for engineers is extremely hot. if everything was growing as you say, then it wouldn't make sense to start throwing things overboard

hobofan 7y ago
That doesn't automatically mean that they need to hire more engineers. Maybe they also have a reasonable amount of them, and since the older products have matured their focus can be shifted to the newer products instead of hiring new people for new products.

lm28469 7y ago

At the end of the day it's still a 10 years old company that has never made money. Unless they pull something similar to Amazon when they released aws I don't see that changing. (Like engineering their own self driving car, but we all know that'll come too late to save them)

mlthoughts2018 7y ago

As far as I can tell, your comment only makes the case for the subsidy problem at Uber stronger by arguing that the subsidy problem is still generating growing losses even after accounting for IPO-related stock compensation costs. This has been a highly analyzed criticism of Uber since day one. See the Naked Capitalism series on it. It boils down to the fundamental economics of taxi businesses and the intrinsic costs of ride supply in illiquid ride markets like suburbs.