
Will Uber Ever Stop the Bleeding? - coloneltcb
https://www.bloomberg.com/news/articles/2017-12-01/will-uber-ever-stop-the-bleeding
======
JumpCrisscross
Uber had $6.6bn on hand at the end of June [1]. Burning $1.5bn in Q3 [2] means
they are down to $5.1bn.

Absent cost-cutting, that implies a 9 to 12 month runway. Even if SoftBank
injects $1bn, that could only add a few months. A larger-than-expected fine in
the Waymo case [3] could literally bankrupt them.

It's time for Uber to reduce the number of markets they run losses in and cut
costs at headquarters. Their old growth model was predicated on an assumption
of unlimited fundraising capability. The scandals seem to have hurt that.

[1] [https://venturebeat.com/2017/08/23/uber-is-still-burning-
cas...](https://venturebeat.com/2017/08/23/uber-is-still-burning-cash-at-a-
rate-of-2-billion-a-year/)

[2] [https://www.bloomberg.com/news/articles/2017-11-29/uber-s-
th...](https://www.bloomberg.com/news/articles/2017-11-29/uber-s-third-
quarter-loss-is-said-to-widen-to-1-46-billion)

[3] [https://mobile.nytimes.com/2017/11/29/business/waymo-uber-
tr...](https://mobile.nytimes.com/2017/11/29/business/waymo-uber-
trial.html?referer=https://news.ycombinator.com/)

~~~
mkempe
The key word here is "burning." If Uber's quarterly losses were caused by
productive spending they could have a chance. Since their mounting losses are
mostly caused by consumption the company is not going to survive.

They recently announced a plan to purchase 24,000 Volvo XC90s for self-
driving, to be delivered from 2019 to 2021, at a cost of about $1b. That would
qualify as productive spending, capital invested for the purpose of greater
production. But that's going to be too late, and if I were running Volvo I
would not count on those sales...

~~~
JumpCrisscross
> _If Uber 's quarterly losses were caused by productive spending they could
> have a chance_

I am reminded of John Maynard Keynes' words. "The market can remain irrational
longer than you can remain solvent."

It speaks of the financing coming home to roost before its labors have borne
fruit. Uber may be financing productive spending. But if it runs out of money
before the spending makes a return, it was for naught.

Uber played two games. One, buying expected long-term profits with short-term
loss-making spending. Two, overwhelming the competition with scale. There is
an adage admonishing attempts to make up unit losses with volume. Uber
sustained losing money at volume by promising investors its long-term gains.
As long as Uber could raise financing, the long-term gains were safe.

This dynamic mirrors the asset-liability mismatch that creates banks' run
risk. Uber is reliant on short-term fundraising to finance its long-term
competitive position. Those short-term backers are now becoming nervous. Just
like a bank facing a run, the only choice is to cut, cut, cut.

------
cleansy
The numbers in this article are not giving a good picture of the company, at
all.

The revenue and operating loss and such do not really give a good idea whether
or not the company will survive in the long term. What are they spending the
money on? Billions in net revenue for an app with offices all around the
globe, fine. But how can you amount such losses with that plus marketing
expense?

\- Number of unique customers

\- Rides/Cust

\- CLV

\- average customer lifetime

\- CAC?

These would be the interesting numbers if you want to assess the company.

Disclaimer: I work in the BI space, but have no formal finance education, so I
might miss a thing or two in this assessment.

~~~
bduerst
In those terms: With the ride subsidies, it's likely that current CAC is
higher than CLV. Since there isn't much customer or driver loyalty, the
customer lifetime doesn't matter since raising prices will likely lose
customers.

You're not going to get a company sharing many of these specific metrics
because they're competitive secrets.

------
digitaltrees
No. They are struggling to do a down round. They didn’t win a monopoly
position, Lyft and others survived. Now they might not have enough runway to
fundamentally change their unit economics. They are walking dead.

~~~
aetherson
I'm pretty bearish on Uber, but let's note that it's a down-round of _$50B_ or
so. Softbank clearly still thinks that there's a bright future ahead for Uber,
if not quite as bright as the earlier $70B valuation suggested.

I'm more bearish than Softbank is. But there's a serious difference between a
down-round that's still makes Uber a uniquely valuable unicorn and the kind of
down rounds that a more typical start-up might get.

~~~
Analemma_
> But there's a serious difference between a down-round that's still makes
> Uber a uniquely valuable unicorn and the kind of down rounds that a more
> typical start-up might get.

The best thing you can say about this is that "it could be worse", but down
rounds are ugly no matter the amount. Because:

\- it indicates a downward trajectory. Start-ups in growth typically IPO at a
higher valuation than their most recent round, because they're moving up. But
the reverse is also true, so if present trends continue the IPO valuation may
be even less. Sure, Softbank may have factored that in, but more ugly news has
surfaced since then, like the destruction of evidence.

\- Down rounds scare away talent, both new hires (who will be much more
reluctant to accept equity) and existing employees (who are going to get
fucked over when existing investors demand more equity as compensation for the
lower value)

~~~
aetherson
I mean, a down round doesn't indicate a downward trajectory in the minds of
the investors. They're still investing. SoftBank expects Uber to be worth more
than $50B. In their minds, it's a correction, not a slippery slope.

Down round are really bad for existing employees, unless more equity is given
to make them whole. But that's not the perspective that matters here.

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bob_theslob646
Title is slightly misleading.

Everyone knows that they are bleeding money, but it is by design to get as
much marketshare as possible/get as many people using/ addicted to their
services. EDIT* They are a software based business ,of course they can and are
highly likely to turn a profit if they raise prices *

The better question that many journalists seem to shy away from asking is:
What are the effects of subsidizing goods/services on the end user? Will end
users be more likely to pay for the goods/services if they increase/charge
market rate for them?

Is it okay to make end users addicted to your services?

It will be a very interesting next 10 years for business models of businesses
like Uber.

~~~
ztratar
"They are a software based business of course they can and will turn a
profit."

The aren't as software-based as many people make them out to be. They need
driverless cars to become what their current valuation and growth expectations
require.

Don't get me wrong, I'm long Uber and think they'll survive either way, but if
others dominate them in driverless and drive prices down before Uber is ready
with their own fleet, they will be forced to conduct a massive down-sizing.

~~~
femto113
Driverless cars are unlikely to increase their profitability anytime soon (if
ever). I dug into the math on this in some depth here:
[https://news.ycombinator.com/item?id=15744074](https://news.ycombinator.com/item?id=15744074)
The TL;DR is that there is not enough spare profit currently going to drivers
to cover the cost of buying driverless cars.

~~~
bob_theslob646
Well that all depends on what you classify as profitable?

Also whoever wrote that piece has never taken a class in accounting. There's
something known as useful life of an asset.( You can write off a lot of
expenses and do other clever accounting tricks that I'll never post on a
public forum)

They also bought one of the safest vehicles.

Wait until they ( insurance companies) start charging higher rates of
insurance for having a less safe vehicle AKA not newer model.

They also bought the same vehicle so they can actually use scale for buying
parts and services to maintain it.

They also just bought a mapping fleet because wherever it goes it will take
images similar to Google Street View. Uber could build its own map service.

All of this reduces costs on the back end.

In terms of operating costs, they can buy fuel at scale and possibly hedge
which makes it incredibly cheap, talking about 20-40% cheaper than anyone
else.

There also was nothing mentioned about prices increasing. The fact of the
matter is that prices will increase. If that's the case they can easily make
that money back over 5 years.

These are some thing that was not mentioned in the calculations you
referenced.

~~~
femto113
You don't need any more specific definition of "profit" in this case than
"which approach is likely to make the company more money than the other". By
going driverless Uber takes on some new expenses (buying/maintaining/operating
the car) and eliminates others (mainly what it now pays out to drivers). My
sense is that they will struggle to break even much less come out
substantially ahead, but feel free to present your numbers showing how that's
wrong.

------
rokhayakebe
Genuine questions:

Did we not ask the same questions about Amazon and now they proved they knew
what they were doing?

Can't Uber continue to operate at a loss for a few years until they can switch
drivers for self-driving vehicles and significantly reduce cost instantly?

~~~
allenz
As I recall, Amazon was criticized for being not very profitable (they have a
terrible PE ratio). But they were almost always profitable.

Uber is being criticized for having massive losses, which is much worse,
because it means that they must make significant changes in the near future
that will likely be detrimental to their growth and valuation.

Also, growth is more valuable for Amazon because they have a bigger moat.

~~~
discodave
Amazon has always been more like breakeven than profitable.

The difference with Amazon is that they would make a core business profitable
and then use the free cash flow to invest in adjacent businesses. Users core
business is not profitable yet.

Books->general merchandise->3p marketplace->prime->AWS->???

Where ??? Will probably be one of logistics, Alexa, or Whole Foods/Go/Fresh.

------
sethev
It's really hard to tell from the overall numbers whether they're in bad
shape. If a significant amount of the expense is in acquiring new customers
then it makes perfect sense for investors to keep pouring money in.

~~~
braythwayt
> If a significant amount of the expense is in acquiring new customers

If _and only if_ there is significant lifetime value for customers. If there
is little or no lock-in, losing money to acquire a first-time customers may
look good to outsiders, but isn't sustainable.

------
danschumann
I think they built their business on shifty ground anyway. The car companies
are going to eat their lunch, like GM. Uber planned to do fleets, but perhaps
it will be easier to do fleets if you already make the cars.

------
ohiovr
Uber is an absolutely feral corporation that should be eliminated, period. It
flagrantly violates the law constantly, its been banned by several law abiding
nations, it has been caught stealing intellectual property, it violates
people's trust and privacy, it takes unfair advantage of labor. It is a
monster. Dismantle it and throw all the company officers in jail.

------
spiderfarmer
If Uber, Tesla, Lyft or any other player lives long enough to have a fleet of
self driving cars with cheap rates and high availability, I am really
interested in ditching one of my own cars. But of the 3 I think only Tesla is
in a reasonably good position to pull this of.

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0xB31B1B
Maybe they’re spending a ton to maintain market position w lyft, who just
raised a bunch of money and is now doubt also lighting it on fire for growth
reasons.

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CodeWriter23
Yes. One way or the other, Uber will stop the bleeding.

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QAPereo
That would only happen if the truth itself were not fatal to them, and their
destruction of evidence suggests that the truth is monstrous. As others here
have said, maybe their financials are as crooked as everything else about
them, and then there’s no IPO, and no future for Uber.

------
pboutros
Once they bleed out!

~~~
mandabuddhi
I wouldn't be sad to see them bleed out.

