
Uber Loses at Least $1.2B in First Half of 2016 - brandonlipman
http://www.bloomberg.com/news/articles/2016-08-25/uber-loses-at-least-1-2-billion-in-first-half-of-2016
======
kbart
I'm no economics expert, but if Uber loses money on subsidiaries, that's
dumping(1) against local Taxi companies and these companies actually _might_
have some valid points, no?

1\.
[https://en.wikipedia.org/wiki/Dumping_(pricing_policy)](https://en.wikipedia.org/wiki/Dumping_\(pricing_policy\))

~~~
karzeem
Genuine question: is it safe to assume that dumping is bad for consumers? It's
clearly bad for competitors, but it's basically like handing out free money to
consumers. The concern is that once all the competitors die, the dumper will
have a monopoly and jack prices up. But empirically, what are some examples of
that happening? With few exceptions, it's only possible for monopolies to
sustain above-market prices when laws block new competitors from starting up.

~~~
sdenton4
Look towards video rental back in the nineties. Blockbuster would move into a
town, give very cheap rentals until the moon and pop stores went under, and
then raise prices.

~~~
p4wnc6
The interesting thing in the case of Uber/Lyft/etc. is that the end goal would
almost have to be a situation in which on-demand ride sharing applications
became nearly the sole mode of transit in the regions of interest. Otherwise,
literally as soon as you drive out all the other transit competitors (taxi
companies, other ride-sharing services, whatever) and begin to apply
monopolistic prices, there will be a huge flood of lower-priced alternate
options, like taxi companies popping up again.

For me, this is what's so scary about Uber. It's not "disruption" as many
people seem to claim. It's engineered regulatory capture.

The goal isn't to disrupt a market, but rather to wipe it out and have the
financial and political backing to secure some sort of regulatory environment
in which lower-priced options cannot emerge after the VC-subsidy phase ends
and the monopolistic price increases begin.

It's double sad that as the sort of flagship start-up of the era, Uber leads
the way in deplorable executive behavior, shady business practices, and
questionable labor policies ... and despite it, they've managed to win the PR
war that has every naive tech youngster singing about how they are
"disruptive" and singing how all criticisms against them are invalid because
of precious, precious "disruption."

~~~
serge2k
It seems to be coming around a bit, but people still talk about "taxi
monopolies" and whine about how awful cities like Austin and Vancouver are to
block Uber.

------
kapilkale
Pretty sure this is not a Webvan scenario. The question at hand should be "if
Uber ran out of funding, would they die"

For Webvan, it was yes.

The answer for Uber is no, at least in the short term.

a) Uber would stop subsidizing drivers, and then would overnight be cash flow
positive

b) The driver subsidies probably wouldn't matter anymore, because if Uber's
funding ran out, so would that of their competitors. Lyft is already on the
brink (source: [http://www.nytimes.com/2016/08/20/technology/lyft-is-said-
to...](http://www.nytimes.com/2016/08/20/technology/lyft-is-said-to-fail-to-
find-a-buyer-despite-talks-with-several-companies.html))

c) they'd exit markets where they were burning cash (e.g. China, which already
happened)

Long term, no idea.

~~~
dtien
Personally, I don't think Uber's strategy is to run out the clock against it's
competitor Lyft (B). But to run out the clock against the technical and policy
headwinds for self-driving cars.

Clearly that's the profitable long term strategy. A lot of people are
flabbergasted that Uber seems to be burning cash for a no-expense, non-capital
intensive operation. But if you look at it as them using the funding to:

1) own the market, mindshare -- driver subsidies

2) technology investment on logistics infrastructure to support a fleet of
driverless cars

3) driverless car tech

4) lobbying for policy change ( on current taxi model, as well as future self
driving model )

well then... the amount of funding and cash burning can somewhat be
reasonable.

NOW, having said all of that. each one of those can are HUGE impediments to
deal with for any new company, and yet they're trying to fight them almost
simultaneously with huge question marks for policy and technology.

They might have a good strategy, but I feel like they might have been 5(10?)
years too early. Time will tell...

~~~
kamaal
>> But to run out the clock against the technical and policy headwinds for
self-driving cars.

That would take a few decades at the current pace. They are currently burning
$2.4 billion/year. Lets say it takes 20 years for self driving cars to take
over.

In that case it would take $40.8 billion in losses. All the best finding an
investor who can give $40 billion and expect nothing in return for 20 years
and have hope of recovering any of that even after 20 years.

------
JOnAgain
I'm surprised that Bloomberg failed to account for inflation in their
comparisons. Amazon's 1.4 Billion loss in 2000 is almost exactly 2 Billion in
today's dollars (1,956,479,674.80 according to
[http://www.usinflationcalculator.com/](http://www.usinflationcalculator.com/)).
So this loss is not unprecedented.

~~~
roymurdock
Although your overall point is valid - some companies need to lose (read:
invest) a lot of money now before they can make a lot of money in the future -
I'm not sure the comparison between Uber and Amazon is valid or meaningful as
2000 Amazon and 2016 Uber are completely different companies targeting
completely different markets in completely different macroeconomic climates.

~~~
oceanofsolaris
If a company is investing in production facilities, building up a supply chain
or R&D, I can completely understand how losing money is a solid strategy. It
is basically taking a loan to invest in being a better company in the future.

On the other hand, losing money by handing out free stuff (cheap rides in this
case) only makes sense if you want to either bankrupt your competitors or
increase the awareness of your brand. Since Uber is at least not a complete
unknown anymore at this point, all signs point towards the "driving out
competitors" strategy. This might still be a viable business plan for Uber
(though I don't see how to be honest), but certainly not one that should be
cheered.

------
greghendershott
This reminds me of what Richard Branson supposedly said: If you want to be a
millionaire, start with a billion dollars and launch a new airline.

(To be fair, airlines pay humans... as employees... unionized.)

I understand the rationale for spending $2 of marketing/whatever to buy $1 of
sales. Grab market share. Step 3, profit like it's 1999. We'll see.

~~~
ctack
Branson's statement reminded me of the old joke:

Q: How do you make a small fortune in farming?

A: You start out with a large one.

~~~
compiler-guy
So many old jokes like this. My favorite variation:

How do you restore a <classic car of your choice> so it is worth $100,000?

Buy one with good bones for $20K and spend $200,000 fixing it up.

------
smeyer
I think the $100MM is just the US losses, not the global loss.

>In the second quarter the losses significantly exceeded $750 million,
including a roughly $100 million shortfall in the U.S., those people said.

~~~
manarth
Only a few months ago, they were reporting that they had hit their Q2 2016
goal (of running profitably in the USA) [1][2].

Guess that didn't last long.

[1] [http://uk.businessinsider.com/uber-says-its-profitable-in-
th...](http://uk.businessinsider.com/uber-says-its-profitable-in-the-
us-2016-4)

[2] [http://www.bloomberg.com/news/articles/2016-04-14/lyft-is-
ga...](http://www.bloomberg.com/news/articles/2016-04-14/lyft-is-gaining-on-
uber-as-it-spends-big-for-growth)

~~~
JonFish85
Profitable can have many more meanings than you'd think. On the surface, to
me, profitable means you make more money than you spend (subtracting all the
costs of doing business, acquiring customers, taxes, payroll, etc).

Depending on who you're talking to, however, that can mean things like "it
costs less to acquire a new customer than they're likely to spend", or that
excluding things like salaries, rent, taxes and such, they're profitable.

In this case I'd guess it means that Uber pays less to drivers than the user
pays them, and ignore everything else (marketing, salaries to employees,
taxes, etc).

~~~
tdees40
I want to put this comment in a time capsule so I can tell my kids what start-
up life was like in 2016.

~~~
objectivistbrit
I see from your comment history you know finance, so - um, what? There are
different definitions of "profit".

~~~
tdees40
I mean sure, there are. In fact, there are lots of pretty standard ideas of
what constitutes profitability. But if you just say, we're profitable, most
people will assume you mean on a GAAP net income basis. If you don't mean
that, you can say, we're cash flow positive or something like that. Or you
could say, "we're profitable on an EBIT basis," or we have a positive gross
margin. You can't just say, hey! if you exclude a bunch of our costs and count
all of our revenue, the revenue is bigger!

~~~
blahi
How to spot a good accountant:

\- How much is 1+1?

Correct answer: Whatever you want it to be.

------
rnernento
So if they're relying on driver subsidies to be competitive but can't make
money that route is there a plan for them to make money without relying on
autonomous vehicles? Or is that the bet?

~~~
Cacti
That would be a ridiculous bet. Autonomous driving in any wide-spread form is
still years if not a decade away. Losing money for a decade while awaiting the
glorious future to redeem you is a sure way to go bankrupt, and quickly.

Uber did not start with plans to use autonomous vehicles and so far their
plans amount to little more than "well, yeah, we'll shift to autonomous cars
when they come." Well, yeah, so will everyone else on the planet. I don't
think it's a coincidence that all of this came up around the time Uber started
to lose money... when they were in the black all the talk was about the "rise
of the freelancer economy."

~~~
harpastum
As crazy as it sounds, they might not actually go bankrupt even if they
continue to lose hundreds of millions per year. They've received $11.5B in
total funding. They've averaged $1.6B in funding _per year_ of operation and
$4.65B in the last 3 months.

It's likely that they're actually building up a war chest at this point,
getting ready for extra spending on self-driving cars.

~~~
sdenton4
According to the article, their world wide loss for the first HALF of 2016 is
$1.2 billion. So $1.6B per year ain't gonna cut it at the current burn rate.

~~~
dragonwriter
OTOH, $4.65B per 3 months more than suffices...

But at some point there's got to be a limit to the tolerance of investors.

------
PatentTroll
"Uber is just waiting until driverless cars are a thing and then they will own
transportation." I hear this all the time, but realisticly that's at least a
decade away. Are Ubers investors prepared to pour $24bn into the company
waiting for this nirvana? They certainly could, but I'm not so sure they will.

~~~
LordHumungous
A decade is being generous. Early adopters maybe by then but they'll be
sharing the road with human driven cars for a long time to come. It's not
clear to me how Uber profits from this scenario. My sense is that driverless
cars are the shiny dangly toy that Uber is using to distract investors. But
maybe I'm being too pessimistic.

~~~
kamaal
My guess is the 'low hanging fruit' part of self driving AI is now done. The
real part has to now follow.

And it will be a few decades before we see anything decent.

------
ctdonath
For a company with practically zero expenses, losing $1.27 billion in 6 months
astounding. Charge a client whatever the driver is willing to work for, plus a
small overhead ... what's to lose money on?

~~~
leothekim
It's a Fabian strategy to establish market dominance. Uber is spending like
crazy to expand for market share. On the surface at least, they are similar to
how Amazon was operating in its early days - investing in itself early to
expand and not expecting to generate a profit for many years.

~~~
samfisher83
AWS already makes more money than the entire Amazon retail side. The Amazon
retail margins are still razor thin.

~~~
thwarted
It's _currently_ pretty even, despite higher margins for AWS, and "already" is
saying a lot despite how long AWS has been around. I covered this 64 days ago
in [0], but here's the relevant part again.

Looking at Amazon's Q1 2016 Financial Results [1], page 8, we see that net
sales of non-AWS amounts to ~$26B, and AWS is ~$2.5B. From the Segment
Highlights section (same page), AWS sales is 9% of total sales. AWS beats non-
AWS income only because there were losses in international; ignoring
international, it's a $16m difference. Looking at page 14, Media sales in
North America and International sum to $5.6B. Media sales alone is double
AWS's sales of $2.5B (page 13). Profit margins are way higher for AWS, so
there's still a lot of room for a larger income difference between the two
segments.

[0]
[https://news.ycombinator.com/item?id=11951577](https://news.ycombinator.com/item?id=11951577)

[1] [http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9N...](http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NjMxNjA2fENoaWxkSUQ9MzM2MTM4fFR5cGU9MQ==&t=1)

~~~
samfisher83
Look at their most recent 10q [http://phx.corporate-
ir.net/phoenix.zhtml?c=97664&p=irol-new...](http://phx.corporate-
ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=2189731)

Retail Profits = (702 (Domestic) + (- 135) (International)) < 718 (AWS)

Amazon made more money on AWS than their retail side.

------
sdenton4
"We're losing a dollar in every transaction, but we'll make it up on volume!"

~~~
r00fus
Wasn't that said of Amazon? Apparently the model has precedent for success
(assuming you consider Amazon is successful).

------
readhn
Singapore just launched self driving taxi. Other competitors are doing the
same. To me it does not matter where I get a cab ride from as long as it is
cheap, safe and fast.

~~~
mgrpowers
And clean please.

~~~
Grue3
Judging by automatic toilets, a self-driving taxi would be anything but that.

~~~
jannyfer
Zipcars are actually fairly clean, in my experience. Professionally cleaned
regularly and it's easy to track who caused a mess if the next person in the
car reports it.

------
intrasight
I've been seeing the Uber robots driving around Pittsburgh in the last week.
They can still loose a lot of money in the short to mid-term if they succeed
in fundamentally changing the nature of mobility with autonomous people
movers.

------
eof
How is it possible that uber is losing money? It must all be research?

If I take a $20 uber ride, uber gets $4 at a marginal cost of close to zero.

They are selling other people's time, it seems like a flawless business model
if you're winning the game..

~~~
dagw
Uber, at least in the past, has been offering subsidies to its driver in many
markets to grow its market share, Basically making up the difference between
what customers are willing to pay and what drivers are willing to work for.
The driver may very well be earning $25 for that $20 ride with Uber making up
the difference.

~~~
oceanofsolaris
So in the longer run, either the drivers will have to work for less than they
are willing to or the customers have to pay more than they are willing to. Or
Uber has to keep paying the tab.

~~~
dagw
I imagine the plan is that once Uber has become ingrained enough in peoples
lives that they have hard time imagining life without it, they can start
slowly turning up the price without losing too many customers.

------
LordHumungous
Uber's premise is that it is a mere facilitator of service providers and
customers, and therefore it can scale like a tech company and not like some
oversized yellow cab with thousands of employees and vehicles on the books.

It's a shell game. Uber may not call it's drivers employees, it may not claim
ownership of the vehicles, but those drivers and vehicles represent overhead
all the same. At the end of the day, the cars must be maintained. High quality
drivers must be recruited and paid. If they aren't, Uber goes out of business.

At this point Uber is looking suspiciously like a large traditional company
that provides a taxi service, with a nice app. Maybe a potentially profitable
one. But worth $60 billion? Nope.

------
dublidu
Why does Uber spend billions to subsidize drivers if self driving cars are on
the horizon?

~~~
kolbe
Maybe someone who knows can answer this better, but my guess is that the
primary purpose of drivers is to draw (then try to lock in) consumers to their
ecosystem. So, their investment isn't in getting drivers for the long haul,
but rather paying drivers to offer a temporary service that will help their
business further down the line.

------
0xmohit
Wonder what were the revenues from the monetization of collected data?

~~~
_pmf_
Do they actually collect anything that Google could not infer purely from
location and time data?

~~~
0xmohit
I suspect that you never checked what information they collect. On Android,
apart from location the app requires following permissions [0]:

    
    
      - SMS (read, send, receive)
      - Photos/media/files (read, modify, delete SD card contents)
      - WiFi connection information
      - Full network access
      - View network connections
      - Read Google service configuration
      - Modify system settings
    

Moreover, they have access to your payment information.

[0] [https://www.uber.com/legal/other/android-
permissions/](https://www.uber.com/legal/other/android-permissions/)

------
mbloom1915
and this co. is going public next year? might want to rethink that

~~~
0xmohit
Isn't it good to go public until valuations are high?

~~~
mbloom1915
A $60B valuation pre-IPO isn't high?

~~~
0xmohit
What I meant was that given the current valuation is high, it's right to go
ahead with an IPO.

But you lead me into thinking: In order to justify $60B valuation, I'd have
expected them to blow up much more than $100M.

------
readhn
Uber will fall 1st victim to its own success. They are facing strong
competition, id be surprised if they survived (but even then they will lose a
significant market share).

~~~
adventured
They're not facing strong competition, they're facing extremely weak
competition (Lyft is heading toward bankruptcy and can't even manage to sell
itself off). They aren't going to lose significant market share, they're going
to end up with a modest monopoly, replicating the positions acquired by:
Google, Microsoft, Facebook, eBay, Amazon, PayPal, Intel, Cisco, etc. The same
story plays out over and over again in tech, and it does so for very obvious
reasons.

Who else is threatening Uber in the US for example? Nobody. Who is going to
spend billions to take the market away from Uber? Nobody.

~~~
thesimon
>Who else is threatening Uber in the US for example?

Taxis? Car manufacturers?

>Who is going to spend billions to take the market away from Uber?

Doesn't look like it's a very profitable market Uber is operating in, so why
should anyone spend billions to do so?

------
jokoon
What are uber expenses? Is there z large hotline? Apart from devs and servers,
i dont see it.

~~~
aetherson
They pay their drivers more for each drive than passengers pay.

------
imron
Don't worry, they'll make up for it in volume!

------
yusiboyz
How is uber able to survive with losing so much of money? Is it because of all
the contributions?

------
baybal2
So much for a lossy taxi company

------
unixhero
That's nothing.

Move along.

------
justaman
This article fails to mention Uber's potential to disrupt the trucking
industry. Uber has been heavily invested in automated driving since inception.
They will not see true profit until this hits the market.

~~~
thesimon
And what prevents car or truck manufacturers from doing the same? It's not
like they are just happy sitting around and doing nothing.

Also looks like the large losses are coming from subsidizing drivers, not R&D.

~~~
kbart
_" And what prevents car or truck manufacturers from doing the same?"_

They are already doing that: [http://qz.com/656104/a-fleet-of-trucks-just-
drove-themselves...](http://qz.com/656104/a-fleet-of-trucks-just-drove-
themselves-across-europe/)

