
Uber Bonds Term Sheet Reveals $470M in Operating Losses - dzhao
http://www.bloomberg.com/news/articles/2015-06-30/uber-bonds-term-sheet-reveals-470-million-in-operating-losses
======
geofft
There was a comment thread earlier today about whether Uber is solving rich-
people problems or common-people problems. I wonder the extent to which Uber's
pricing is sustainable -- are they subsidizing uberX and uberPOOL pricing out
of money they're raising, or are the debts just in the pursuit of growth to
new cities? Or put another way, if they ceased all growth, froze prices, and
laid off all engineering and marketing staff except for one person to keep up
with mobile OS updates (but kept the staff to recruit drivers, deal with legal
issues, etc.), would the company be profitable, or would it go bankrupt?

I certainly don't complain when I get subsidized lunches delivered to me on VC
money, but when existing Uber cities are debating regularizing Uber's legal
status or just fixing the inefficiencies / problems with the taxi industry
that Uber capitalized on, I want to know if Uber's going to be around for the
people of that city, at the same effective prices, in 20 years.

~~~
prawn
Maybe their plan is just to subsidise drivers until self-driving cars arrive,
by which time they will have brand dominance and can carry on merrily.

~~~
SilasX
I don't know why people think self-driving cards benefit Uber uniquely.
Everyone else would get to use them too, after all, so Lyft's costs also go
down.

It's like saying, "whoa, tomato prices have skyrocketed -- I bet grocery
stores are making record profits!"

To be sure, there might be _some_ differential advantage, but not enough to
justify subsidizing everyone in the hopes they won't jump ship after
competition comes in from other brands without these "legacy costs".

~~~
geofft
Well, to the argument I was trying to set up (whether cities should regularize
Uber or fix taxis), one important change is that Uber now has the capital to
make self-driving cars happen, and will continue to have the capital to make
them continue to improve, and the taxi industry and transportation agencies
don't. That is, I'm not drawing a huge distinction between Uber and Lyft,
since both are questionably legal, but between Uber/Lyft/etc. and taxis. You
could argue that letting Uber run self-driving cars is better than trying to
have government-run self-driving cars.

Depends a lot on whether Uber themselves are making this happen, or we're
looking to Tesla, Google, etc. If self-driving cars are going to happen
anyway, then there's an argument from the other direction that permitting Uber
has no long-term benefits.

------
ravenkat
This is really interesting. I believe this might be attribute to all the Uber
promotions in Asia. I have heard from all my friends in India/China that Uber
rides are actually free for around 10-15 rides. Also, they are giving tons of
money to Drivers to promote Uber in India.

An average Uber driver in Bangalore earns 110000 INR per month where as an
entry level software engineer in GOOG/AMZN in India earns 80000 INR/month.

I was shocked that one of my friends who drove Uber in Bangalore told me that
he made 180000 INR two months back.

It would be interesting to know Uber's customer acquistion cost and driver
acquisition cost.

~~~
cheriot
I'm still surprised that Uber is entering such competitive markets. I mean, in
much of the western world, they're using a mobile app to side step cab hailing
laws and break long standing taxi oligopolies. Does anyone know what market
flaws they're solving in India and Asia?

~~~
colechristensen
I don't like how uber flaunts the law in so many places, but their competitive
advantage doesn't come from non-compliance.

The service is plainly better. The cars are better, the drivers are rated,
payment is easier, hailing is easier, knowing where your cab is and how long
it will be and how much is will cost before you start your ride ... is better.

I live in the Twin Cities ... not a place where cabs are dense enough to just
hail one walking down the street (unless it's in a prime drinking/sporting
hour & location).

Uber, Lyft, and the city of Minneapolis worked together to make uber-like
services legal while giving concessions to the local traditional taxi drivers
without compromising appropriate regulations. Everyone behaved reasonably
which is sadly extremely rare everywhere else.

The running theory is that unreasonable people either leave Minnesota or are
found only after the snow thaws (please don't take this too seriously :) )

~~~
dylanjermiah
If flaunting the law results in an all round better service perhaps the laws
don't do what they're supposed to.

~~~
colechristensen
There is a difference between trying to behave reasonably outside the law
starting up while trying fix regulations fairly and in good faith when you get
enough attention ... and ostentatious defiance, which is how many would
describe Uber's behavior in many circumstances.

'flaunting' was a carefully chosen word.

~~~
dylanjermiah
There is no behaving 'reasonably' outside the law. It's clear that if they had
not won over the consumers, the people who the law is supposed to help, Uber
would not exist.

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personjerry
Tangential to OP: How does HN feel about the "evilness" of Uber?

At my school the general feel is that Uber is pretty evil, notably for its
attitudes towards its drivers as well as towards Lyft.

~~~
wpietri
Having worked for financial traders I won't call them the very worst company
in the world. But if my choices were working for them or quitting the
industry, I wouldn't blink.

For me it's more the accumulation of awfulness. They started out as a scheme
to time-share limos among young entitled dudebros. They entered the market
with the black cars, exploiting a status-good dynamic. They've shifted all of
the capital cost and risk of the taxi business to drivers, surely screwing
many of them in the process. Their "we're too important to comply with mere
laws" routine strikes me as arrogant horseshit. They've had assorted scandals,
including inviting a bunch of journalists to an off-the-record dinner and then
"joking" about plans to spend lots of money to destroy the career of a
prominent journalist they didn't like. I've lost count of how many places have
arrested or issued arrest warrants for their people.

Throughout all of this, they sing a song of "entrepreneurship" and "worker
independence" while providing low-quality, low-stability jobs and making long-
term plans to put every one of their drivers out of work. They couldn't give a
shit about their workers, and are even willing to threaten their jobs (which
aren't jobs, of course, but independent contractor positions) if they are
politically active.

On top of all of that, I believe they're a great example of the shift back to
a new gilded age, where the main function of the poor is to directly serve the
wealthy. But instead of a Victorian model where employees are part of the
household, in the Uber model we'll get paid only during the instants we are
directly useful to somebody with money.

That's just some highlights off the top of my head; the list goes on. They may
not be the _very_ worst, but they have an awful lot of people rooting for
their fall. I expect they won't go totally bust. But I am looking forward to a
Groupon-style outcome once their investor-fueled growth becomes untenable.

~~~
omarchowdhury
'In the Uber model we'll get paid only during the instants we are directly
useful to somebody with money.'

I'm sorry, but that sounds more like the efficiency that capitalism optimizes
towards.

~~~
efuquen
My problem with that statement is that it describes every single job you could
possibly have, even the very well paying ones. You are always trading your
labor to somebody with money, whether it's an Uber driver or the CEO of a
major corporation. It's not the "Uber model", it's the money represents an
agreed upon denomination to trade goods and services with model.

~~~
learc83
The important part of wpietri's critique is "during the _instants_ we are
directly useful".

The CEO doesn't stop being paid when she walks to the bathroom, and a cashier
doesn't stop being paid when he's waiting for a customer to show up. wpietri
is talking about a shift in the granularity of trading your labor for money,
so that you aren't paid for a day or an hour of work, but for the exact number
of minutes you performed _useful_ work.

The shift is away from paying an employee for 8 hours of work--knowing that he
will only be performing useful work for some fraction of that time--towards
paying the same employee only for the time spent being productive.

Since most people aren't able to work productively for an entire 8 hour shift,
this change probably means a net decrease in wages.

We've already started to see this with computer scheduling in retail.
Assigning split shifts, irregular shifts, and scheduling the bare minimum
number of employees required to minimize employee downtime.

~~~
icebraining
But Uber doesn't represent that shift, since taxi drivers were already
considered contractors and paid by the ride.

------
lsc
I've been pondering how you'd break the uber lock on the market. I mean, I use
Uber and not Lyft 'cause there are more Uber drivers, so on average, the car
is gonna be there faster if I use Uber.

However, if I had an app on my phone to check the nearest uber and the nearest
lyft and the nearest whatever else? that would remove the barrier to entry
that Uber has set up. in that case (at least when lyft had a nearby car) I'd
be happy to take lyft or the local cab company, if they had a similar app.

Of course, you'd end up with an arms race with uber, or whoever the dominant
player was, with them trying to break your app.

Interestingly, I bet that the second and third tier ride-sharing companies
would cooperate, so if there were enough of them in the area, the idea would
work fine even when uber was winning the arms race.

~~~
Dwolb
You could break the Uber lock on the market if supply and demand are not
sufficiently random to require Uber's marketplace to coordinate.

That is, if it is usually convenient for Joe to depart from work at a certain
hour and this is a time when Maureen typically likes to drive, both Joe and
Maureen could potentially disintermediate Uber and split the marginal gain.
This solution could look like a simple payments app, ride scheduler, and a
local 'I'm here' function.

Another option could be to structure the market to enable 'teams' of drivers
(ie like a taxi company brand). Allow these teams to find further operational
gains through pooling resources and greater coordination. This solution would
re-imagine the Uber market and driver tools for full-time workers.

~~~
lsc
Eh, I think the "one big marketplace" model is best. I... honestly, I don't
_want_ another relationship I have to worry about. I know it sounds terrible,
but I just want to get to work every now and again, and I don't want to have
to plan it ahead.

My point is that you don't have to run the cars to run a marketplace, though
the money is being thrown at doing both at once in an effort to lock the
running of the cars into the monopoly.

Running the marketplace is the only real natural monopoly here, though; If you
can decouple the marketplace from the running of the cars, you could
potentially become a lot more efficient, by allowing smaller players to run
the cars.

~~~
Dwolb
Hm, I think 'one big marketplace' is how people originally thought about
messaging online. I don't need WhatsApp, I have SMS. I don't need Snapchat I
have WhatsApp. I don't need Facebook, I have Twitter.' However, horizontal
differentiation in messaging and social has allowed people to use different
tools depending on context. In fact, it's currently a bit silly to think you'd
spam all your message or social apps at once using a single app or service.

I don't really feel there is a natural monopoly with today's tech when it
comes to carsharing. This goes back to my first couple of points where
ultimate coordination and reduction of friction may be better served by
local/human players to some extent.

~~~
lsc
I... honestly I have no idea why there are players other than IRC and email,
with sufficiently fancy clients.

Either it's primarily a marketing game, and the people willing to invest in
marketing want their own network so that they have more control/can extract
more value, or I just don't understand the market.

------
digitalzombie
If the bubble burst now, Uber will be the poster child of what's wrong with
start ups.

I would probably be happy if they were to fail, for their past actions toward
their competitor and their CEO's comments on the drivers were disgusting.

With the back lash with California's ruling and France, I think the laws are
catching up to the new tech service and it doesn't look good currently for
Uber. While people may argue that it's just California, California has a big
population and a big market.

But a silver lining would be Telsa look like it were doom until Model S and
they survived. I personally thought they were going to make it.

------
boomzilla
This just shows that there is not much margin in this industry. They are
essentially buying market share. However, as soon as Uber try to squeeze out
some profit, they'll be undercut by the competitors.

~~~
omarchowdhury
Competitors lowering their pricing is not going to magically cause an exodus
of customers who are attached to using Uber. Price change would be gradual, if
done correctly, imperceptible. Plus, those competitors are being squeezed
right now, who knows if they will be around once Uber decides to raise pricing
to move towards profit. As they say on Wall Street, the market can stay
irrational longer than you can stay solvent. No doubt this saying is apt for
this present circumstance, especially since Wall Street is involved.

Uber is in the service industry, and winning in the service is not always on
price.

~~~
onion2k
Let's assume their strategy works and they win an effective monopoly. What's
stopping a "new Uber" coming along, funded by a couple of billion in VC money,
to attack Uber's monopoly position by offering the same service cheaper. If
winning a market can be done by subsidising your offering with VC cash then
someone else will come along and do it as soon as Uber push for higher prices.

While there's huge amounts of private equity money available Uber will never
be able to raise prices, especially considering there are plenty of investors
around who are unhappy about missing Uber's first few rounds.

~~~
pbreit
Reality is the opposite. Uber is building a commanding, monopoly-like position
whereby it can raise and lower prices as necessary. Not only does winning a
market require way more than subsidies but Uber is also in the best position
to subsidize.

------
zouhair
So they operate illegally, pay no taxes and still make no money. I don't get
it.

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

------
pratyushag
The concept of Uber (i.e., being able to reliably call a taxi from the phone)
has a lot of value but there are significant competitive advantages of being
the first to a customer's phone or by being the cheaper option to get
adoption.

Hate to simplify it, but in many ways what we saw with Uber was similar to
GroupOn. Uber will likely collapse, let's hope it does not take the tech
market down with it. Although, I'm all for bubbles bursting and markets
normalizing.

------
mrweasel
Did anyone actually believe that Uber was making a profit?

Honestly the question should be: Can you have a $50 billion valuation, while
losing money? I'm not saying the the valuation should be zero, because they do
have assets, but $50 billion is a lot of money.

~~~
adventured
The answer to that question is: Amazon.

At various times they've managed around a $100 to $200 billion valuation while
losing money. They're an extreme outlier of course.

Salesforce.com hit near a $50 billion market cap recently, and they've never
once printed a positive net income result.

If the sales growth and market dominance is there, the valuation will float a
lot longer than seems reasonable given the lack of profits. This is especially
true in tech, as it's believed that market dominance in tech inevitably leads
to later outsized profit. It also helps if the losses are brought under some
control, such that they aren't threatening the survival of the business.

------
dylanjermiah
These are old numbers. IIRC they're estimating 10bn gross this year, with
20-30% margins.

~~~
pbreit
I think you mean "net revenue" (rider receipts less payments to drivers).

And if the $417m is from Q4 2014 (or even Q1 2015), 200% growth this year
would surpass $3b (i.e., 30% of $10b).

------
icedchai
Big surprise. But don't worry, they'll make it up in volume...

