Uber disappoints once again
The latest quarterly results from Uber have disappointed investors by confirming a total NET loss of US$5.2bn. This is far in excess of the company’s US$878m NET loss recorded a year ago – itself a huge amount of money.
This enormous loss can partly be explained by US$3.9bn of stock compensation payments related to Uber’s initial public offering, but revenue also rose more slowly than expected. Analysts expected growth of US$3.2bn, but this target was missed as the first quarter growth rate of 20% was not repeated.
This is in spite of an increase in bookings (31%), active users (30%) and trips (35%) – which raises questions about Uber’s business model in its entirety. How can all of its fundamental services grow while revenue goes down and losses go up?
Gene Munster, an analyst at Loup Ventures, was not impressed by the numbers, saying: “Bottom line: as a growth company, you have to beat your revenue numbers, and that didn’t happen this quarter.”
However, Dara Khosrowshahi, Uber chief executive, was more upbeat as you would expect, arguing that the company expects losses to narrow over the coming years. “The competitive environment in most of the markets that we’re competing [in] are stable or improving, or our competitive tactics are improving,” he told analysts.
Uber is also under fire in several other areas. The most disappointing is that the company is saving US$500m a year by refusing to classify its drivers as employees. By calling them “contractors”, Uber avoids paying an average of US$9.07 an hour in America, for example. Or, to put it a different way, Uber is not paying minimum wage, overtime, health insurance, lunch or rest breaks, holiday pay or social security.
A second area where Uber is failing is that it is increasing traffic and, therefore, traffic fatalities. The main benefit of ride-hailing taxi services is that they can provide capacity in underserved areas. However, the evidence is that platforms such as Uber are also increasing traffic in areas that have a satisfactory level of public transport. This is bringing more cars into cities, and research from the University of Chicago’s Booth School of Business estimates that services like Uber are now responsible for up to 3% of all crashes.
There is something deeply troubling about a business which manages to inflict higher fatality rates on urban areas at the same time as worsening traffic and undercutting wages for workers.
The people in charge at Uber are betting they can ride out all the bad publicity for long enough that their undercutting of prices can drive traditional taxi companies out of business. Once it has a monopoly, Uber will then raise its prices – though whether it will simultaneously start treating its drivers better is doubtful. After all, if Uber’s undercutting destroys the competition then drivers will have nowhere else to go.
However, until it reaches that point – if it ever does – then Uber appears to be operating on a business model that will continue to make traffic issues worse, drive down employment standards and burn through investors’ money. It will be interesting to see how much longer investors will continue to pour their money in, and whether they will stop before Uber wins its bet.