Uber had $6.6bn on hand at the end of June [1]. That 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 mean a few months’ runway. A large fine in the Waymo case [2] could literally bankrupt them.
The (buzzword warning) hyper-growth startup model is in essence 2X revenue, 1.5X costs. Repeat until inevitably profitable - and I say inevitably because with enough time, 2X revenue, 1.5X costs gets to profitable. The only variable there is having a long enough runway.
Uber seem, from the financial data I have seen, to be sticking to that playbook down to the 3rd decimal place (exaggeration for effect). When Uber does turn the profitability corner, it will be at a level well over a billion a quarter.
Sure it's a risk, but if any company was setup to be huge, had followed almost all the meta-rules on growth and looked to be hitting those growth targets, it is certainly Uber.
Yeah I am really perplexed with Uber's business model. They can't survive much longer and they can't keep getting injections of cash to stay alive, can they? It's rumored they'll IPO in 2019, if I remember correctly, which means they have to somehow survive until then to at least reach that stage.
Are they planning to raise prices? Cut employees? What are they planning on doing here?
Honestly if they need to make money, they can lay off a ton of staff, and license their logistics software to a lot of companies. It wouldn't be what their game plan has been, definitely a severe pivot but they would be a money printing machine for years to come.
Very interesting situation they are in. Part of me wonders if the negative press coverage is driven in part by the investors losing confidence in management's business acumen (vs ethics / culture), and using the press to push travis and others out
TO my understanding (probably not a full understanding), Uber's business model to date has always been predicated on subsidizing cheap fares and wages that at least keep lots of drivers around. The idea was at some point this would be sustainable and the subsidies would go away. It is unclear now whether such a point exists
Uber could cut costs, ie massive layoffs, but imagine what that would do to its talent base. Who would stay at uber amid massive layoffs when the hiring market is so strong?
THey could try to improve unit economics by charging higher fares or squeezing drivers further, but it is unclear how much more they could squeeze drivers, and if fares rise materially, a lot of their business goes to lyft or goes away entirely.
i rarely used uber when i was in NYC or non-SF places in CA. in SF uber might still be viable because public transportation is so terrible, but in many other cities uber could disappear and people wouldnt miss it all that much
That is exact time 2019 January google Waymo will be having driver less full autonomous Ride hailing service at least in 10 US Cities in limited routes of each city to begin with ( as Phonix driver less service is LIVE at this time).
Unless Uber driver less technology is ready for deployment for real world Ride hailing service by 2019 January (even in small limited routes in those 10 cities), Uber is in big trouble !!!!!
I think this Uber 30% lowered valuation is result of this two factors of perceived RISK that is
a) running out of money in one year
b) driver less technology readiness by 2019 for real world use
Waymo won't bankrupt Uber. If Uber loses, they will appeal. Uber will run out of runway for other reasons before they're done with the appeal.
What a loss to Waymo might do is make an Uber IPO much less attractive. It might even be the difference between an IPO happening and not happening. And that might be the difference between Uber getting another year or two of runway and them dying in 2018.
1) Uber will IPO, there's just oo much money and influence behind it to stop that.
2) I'd be really worried if I was an employee about my options and also about my job.
Employee's now ahve two large worries hanging over their heads.....
What about my job and what about my options...
With Uber preparing for an IPO, they'll od what most companies do, clean up their balance sheet. And with the losses piling up they'll start cutting costs, which as for most tech companies starts with employee's.
And now I don't htink anyone believes that they'll IPO at anywhere close to the 60+ Billion valuation they had a year ago.
Infact SNAP looks like a great model to study for what an Uber IPO might look like, lots of good first day to week action with price rises but then a steady stream of down days leading up to their first quarter report which will almost certainly show them loosing money and then much larger short interest leading up to a huge lock up expiry of their employee's options.
Given how much money institutional investors put into the company, and the late stage at when they did and given how much they valued the company at, I'd be very afraid if I was an option holding employee at just how many shares are going to flood the market before I get to try and redeem my own options.
And to top it all off, the biggest thing driving their valuation recently, self driving cars, appears to be in serious jeopardy, can anyone make a credible case of Uber having self driving fleet in the next 5 years?
EDIT to those of you who i confused with layoffs. No one is saying that Uber needs to be profitable when they go public, but their burn rate had better be decreasing. T
hey don't need to fire 3 billion dollars worth of salary, no one would think that's a wise move, but they had better show they are moving towards profitability, and the easiest way to show this is a string of quarter where their quarterly loss is decreasing and the easiest way to do that is to cut costs and the largest cost is people.
> And to top it all off, the biggest thing driving their valuation recently, self driving cars, appears to be in serious jeopardy, can anyone make a credible case of Uber having self driving fleet in the next 5 years?
Uber currently sends teams to major cities all over the world to build maps for self driving cars. They outfit cars in those cities with 6 figure camera rigs and enable 'passive collection', where maps are built over the course of normal rides. After that they actively collect any missing pieces and move on to the next city. They've got teams in C / D level cities (which I won't name because I don't want to ID anyone but are the international equivalents of a Baltimore MD or Miami FL).
They are not positioned as well as say Tesla IMO but they also aren't just sitting around waiting for something to happen on this front.
An IPO would be the best scenario but it is far from certain.
Given the widespread unethical (and probably criminal) activity that was conducted at the highest levels of the company I would say there are even odds that there are some big skeletons in the closet that opening the books would reveal and that is why they have stayed private so long.
Why else would Benchmark and others be running for the exits now? If all the smart money that knows the company best is dumping at a discount it does not paint a pretty picture.
Are Uber's costs really in the tech space? It's a complex tech operation for sure, but I wouldn't have thought they could make up much of the 1.5bn USD if they fired a bunch of developers. These bulk of these costs must be in marketing, customer acquisition and discounted fares, right?
I generally agree with this, however if Softbank easily fills their tender offer I wonder if it puts a crimp in the IPO plans. Lets say that Softbank's tender is filled with a bunch of executives and Kalnick contributing their shares to get a payoff (shades of Groupon's last raise before going public). What does that look like to potential investors on the roadshow? How much bump will they need to be 'promised' before they subscribe?
No matter what I think Uber will remain a big part of the unicorn bubble story going forward.
I couldn't understand the part about an employee and loosing my job. Are you saying that they won't be able to sell their equity even at a steep discount in 90 days? Even, if they incur a loss of ~30-40% over the current prevailing price; it would still be a fortune. They can easily do that to save on the tax or did you mean something else?
When looking at SNAP vs UBER, I think that this negative publicity will stop that first positive bump. Each negative scandal after will hit their stock hard, along with each quarter report. I do agree it will happen, but I think most everyone will see through it.
Given their burn rate and their IPO scheduled for 2019, they will still struggle to get there even with the incoming round. At this point it's hard to find any winners besides Lyft.
What happens to stock which isn't part of the IPO? Ie, all the stock owned by employees, investors, etc? Does it become instantly tradeable?
I would imagine that considering the long road, a lot of people are really ready to sell. There are lots of owners that will have achieved 50X or more return, even at a low market cap. Former employees with option strike prices @ £20m, early investors that got in @ £150m....
That means far too much of their net worth is in Uber. They need out regardless of fundamentals. They've probably felt this way for a while. Meanwhile all the shifty news about workplace bullying, an ousted ceo, legal battles.
I guess this applies to all IPOs. Why don't prices plummet as soon as all the people who want out can get out?
A third worry: Uber's brand on your resume. At every turn there just seems like increasingly shady stuff coming out of there: covering up data breaches, covering up IP theft, etc.
Apparently, it WOULD BE possible to completely kill off the legacy taxi industry given 10 years or so of artificially subsidized pricing. So I understand the concept of disrupting a previous oligarchy, replacing it with a new monopoly, and then profiting through rent seeking.
But where are the barriers to entry that would allow Uber to solidify as that new monopoly? There's already Lyft today... and once Uber starts to charge their true costs, then we'll likely see numerous other competitors emerge to compete on price. Ultimately, they're just a phone app! Most Uber drivers today are running the Uber app and Lyft app side by side anyway.
The usual playbook calls for the early leader to pay off politicians, and have them write new laws or regulations that raise the barrier to entry for future competitors. But Uber's playbook has been to take an antagonistic stance toward politicians, rather than buying them off. So what's to stop some newer competitor from beating them on price... or some huge company to swoop in after Uber establishes the market, and beat them by cross-promoting and leveraging their other lines of business?
I am sorry, but I don-t understand why they lose so much money. They take 30 % of all trips, they don-t have cars, they don-t pay salaries to drivers. Is it the infrastructure so expensive?
In many markets they pay drivers more than they make on each ride - significantly more.
It happens in various forms, but I suspect minimum-payout subsidies are one of the main causes.
In many cities Uber is trying to shorten wait times (so there's a car very close to you always), and the only way to do this is to flood the streets with drivers. Flooding the streets with drivers lowers each driver's earning ability, since there are now more drivers competing for the same number of passengers.
To make sure drivers don't quit, Uber has been in the habit of guaranteeing payouts - if you work this area during a particular time period, they guarantee you a minimum level of earnings, paying you the difference if there aren't enough passengers.
This is a big part of how they lose money - in order to maintain a system where a car is always nearby, they need to pay drivers a lot more than they make from the passengers.
Probably most of there losses are explained by markets they are trying to develop and also expansion into areas where they do not yet have drivers. I can't imagine the cost would increase too much going forward - it's essentially the same as the cost of delivering pizza, and pizza isn't too expensive, and riders can pool, so it should be below the cost of pizza to deliver a person. And once people start giving up cars for Ubering, pooling will become much more efficient.
Anecdotally, Uber seems to have a large foot print. If it were to fail I wonder how much the economy would be affected? Ie would it start an end of much of the sharing economy - and thus trigger some market corrections?
LOL if Uber disappeared tomorrow you would get the same driver in the same car on Lyft or another app and the day after that would have forgot Uber ever existed.
What's to stop Uber from slowing the burn via an increase in base prices? People would still use Uber as long as it's A) more convenient than other transportation B) better quality rides than cabs and C) just a little cheaper than cabs.
There are surely other forms of revenue they can spin up too, but this seems to be pretty straightforward, especially in markets where they have already decimated local taxi firms.
> Uber Technologies Inc.’s net loss widened to $1.46 billion in the third quarter, according to people with knowledge of the matter, as the ride-hailing leader struggled to fend off competition, legal challenges and regulatory scrutiny.
"according to people with knowledge of the matter.."
How is reporting like this legal? Is this not speculation?
It baffles me that no fact checking/ benchmarking exists for such a major news platform.
[+] [-] JumpCrisscross|8 years ago|reply
Absent cost-cutting, that implies a 9 to 12 month runway. Even if SoftBank injects $1bn, that could only mean a few months’ runway. A large fine in the Waymo case [2] could literally bankrupt them.
[1] https://venturebeat.com/2017/08/23/uber-is-still-burning-cas...
[2] https://mobile.nytimes.com/2017/11/29/business/waymo-uber-tr...
[+] [-] T2_t2|8 years ago|reply
The (buzzword warning) hyper-growth startup model is in essence 2X revenue, 1.5X costs. Repeat until inevitably profitable - and I say inevitably because with enough time, 2X revenue, 1.5X costs gets to profitable. The only variable there is having a long enough runway.
Uber seem, from the financial data I have seen, to be sticking to that playbook down to the 3rd decimal place (exaggeration for effect). When Uber does turn the profitability corner, it will be at a level well over a billion a quarter.
Sure it's a risk, but if any company was setup to be huge, had followed almost all the meta-rules on growth and looked to be hitting those growth targets, it is certainly Uber.
[+] [-] BinaryIdiot|8 years ago|reply
Are they planning to raise prices? Cut employees? What are they planning on doing here?
[+] [-] ProAm|8 years ago|reply
[+] [-] aaavl2821|8 years ago|reply
TO my understanding (probably not a full understanding), Uber's business model to date has always been predicated on subsidizing cheap fares and wages that at least keep lots of drivers around. The idea was at some point this would be sustainable and the subsidies would go away. It is unclear now whether such a point exists
Uber could cut costs, ie massive layoffs, but imagine what that would do to its talent base. Who would stay at uber amid massive layoffs when the hiring market is so strong?
THey could try to improve unit economics by charging higher fares or squeezing drivers further, but it is unclear how much more they could squeeze drivers, and if fares rise materially, a lot of their business goes to lyft or goes away entirely.
i rarely used uber when i was in NYC or non-SF places in CA. in SF uber might still be viable because public transportation is so terrible, but in many other cities uber could disappear and people wouldnt miss it all that much
[+] [-] mylons|8 years ago|reply
[+] [-] at-fates-hands|8 years ago|reply
After reading the Times article (currently #7 on HN list) it would look like a fine is probably the least of their worries in the Waymo case.
[+] [-] paulcole|8 years ago|reply
Just curious, but does it actually mean this? I thought some of their $1.5B losses could be in the form of debt that has to be repaid in the future?
[+] [-] hkmurakami|8 years ago|reply
[+] [-] LrnByTeach|8 years ago|reply
That is exact time 2019 January google Waymo will be having driver less full autonomous Ride hailing service at least in 10 US Cities in limited routes of each city to begin with ( as Phonix driver less service is LIVE at this time).
Unless Uber driver less technology is ready for deployment for real world Ride hailing service by 2019 January (even in small limited routes in those 10 cities), Uber is in big trouble !!!!!
I think this Uber 30% lowered valuation is result of this two factors of perceived RISK that is
a) running out of money in one year
b) driver less technology readiness by 2019 for real world use
[+] [-] AnimalMuppet|8 years ago|reply
What a loss to Waymo might do is make an Uber IPO much less attractive. It might even be the difference between an IPO happening and not happening. And that might be the difference between Uber getting another year or two of runway and them dying in 2018.
[+] [-] chollida1|8 years ago|reply
https://www.bloomberg.com/news/articles/2017-11-29/uber-s-th...
At this point, two things are clear to me:
1) Uber will IPO, there's just oo much money and influence behind it to stop that.
2) I'd be really worried if I was an employee about my options and also about my job.
Employee's now ahve two large worries hanging over their heads.....
What about my job and what about my options...
With Uber preparing for an IPO, they'll od what most companies do, clean up their balance sheet. And with the losses piling up they'll start cutting costs, which as for most tech companies starts with employee's.
And now I don't htink anyone believes that they'll IPO at anywhere close to the 60+ Billion valuation they had a year ago.
Infact SNAP looks like a great model to study for what an Uber IPO might look like, lots of good first day to week action with price rises but then a steady stream of down days leading up to their first quarter report which will almost certainly show them loosing money and then much larger short interest leading up to a huge lock up expiry of their employee's options.
Given how much money institutional investors put into the company, and the late stage at when they did and given how much they valued the company at, I'd be very afraid if I was an option holding employee at just how many shares are going to flood the market before I get to try and redeem my own options.
And to top it all off, the biggest thing driving their valuation recently, self driving cars, appears to be in serious jeopardy, can anyone make a credible case of Uber having self driving fleet in the next 5 years?
EDIT to those of you who i confused with layoffs. No one is saying that Uber needs to be profitable when they go public, but their burn rate had better be decreasing. T
hey don't need to fire 3 billion dollars worth of salary, no one would think that's a wise move, but they had better show they are moving towards profitability, and the easiest way to show this is a string of quarter where their quarterly loss is decreasing and the easiest way to do that is to cut costs and the largest cost is people.
[+] [-] __sha3d2|8 years ago|reply
Uber currently sends teams to major cities all over the world to build maps for self driving cars. They outfit cars in those cities with 6 figure camera rigs and enable 'passive collection', where maps are built over the course of normal rides. After that they actively collect any missing pieces and move on to the next city. They've got teams in C / D level cities (which I won't name because I don't want to ID anyone but are the international equivalents of a Baltimore MD or Miami FL).
They are not positioned as well as say Tesla IMO but they also aren't just sitting around waiting for something to happen on this front.
[+] [-] saas_co_de|8 years ago|reply
Given the widespread unethical (and probably criminal) activity that was conducted at the highest levels of the company I would say there are even odds that there are some big skeletons in the closet that opening the books would reveal and that is why they have stayed private so long.
Why else would Benchmark and others be running for the exits now? If all the smart money that knows the company best is dumping at a discount it does not paint a pretty picture.
[+] [-] albertgoeswoof|8 years ago|reply
[+] [-] ChuckMcM|8 years ago|reply
No matter what I think Uber will remain a big part of the unicorn bubble story going forward.
[+] [-] hatred|8 years ago|reply
[+] [-] sctb|8 years ago|reply
[+] [-] hkmurakami|8 years ago|reply
Option exercise price is 409A price, not the preferred price per share.
These two things make it highly unlikely that any option holder is truly under water.
[+] [-] adjkant|8 years ago|reply
Given their burn rate and their IPO scheduled for 2019, they will still struggle to get there even with the incoming round. At this point it's hard to find any winners besides Lyft.
[+] [-] dalbasal|8 years ago|reply
I would imagine that considering the long road, a lot of people are really ready to sell. There are lots of owners that will have achieved 50X or more return, even at a low market cap. Former employees with option strike prices @ £20m, early investors that got in @ £150m....
That means far too much of their net worth is in Uber. They need out regardless of fundamentals. They've probably felt this way for a while. Meanwhile all the shifty news about workplace bullying, an ousted ceo, legal battles.
I guess this applies to all IPOs. Why don't prices plummet as soon as all the people who want out can get out?
[+] [-] michaelbuckbee|8 years ago|reply
[+] [-] albertgoeswoof|8 years ago|reply
[+] [-] StevePerkins|8 years ago|reply
Apparently, it WOULD BE possible to completely kill off the legacy taxi industry given 10 years or so of artificially subsidized pricing. So I understand the concept of disrupting a previous oligarchy, replacing it with a new monopoly, and then profiting through rent seeking.
But where are the barriers to entry that would allow Uber to solidify as that new monopoly? There's already Lyft today... and once Uber starts to charge their true costs, then we'll likely see numerous other competitors emerge to compete on price. Ultimately, they're just a phone app! Most Uber drivers today are running the Uber app and Lyft app side by side anyway.
The usual playbook calls for the early leader to pay off politicians, and have them write new laws or regulations that raise the barrier to entry for future competitors. But Uber's playbook has been to take an antagonistic stance toward politicians, rather than buying them off. So what's to stop some newer competitor from beating them on price... or some huge company to swoop in after Uber establishes the market, and beat them by cross-promoting and leveraging their other lines of business?
[+] [-] DonHopkins|8 years ago|reply
[+] [-] pishpash|8 years ago|reply
[+] [-] TsomArp|8 years ago|reply
[+] [-] potatolicious|8 years ago|reply
It happens in various forms, but I suspect minimum-payout subsidies are one of the main causes.
In many cities Uber is trying to shorten wait times (so there's a car very close to you always), and the only way to do this is to flood the streets with drivers. Flooding the streets with drivers lowers each driver's earning ability, since there are now more drivers competing for the same number of passengers.
To make sure drivers don't quit, Uber has been in the habit of guaranteeing payouts - if you work this area during a particular time period, they guarantee you a minimum level of earnings, paying you the difference if there aren't enough passengers.
This is a big part of how they lose money - in order to maintain a system where a car is always nearby, they need to pay drivers a lot more than they make from the passengers.
[+] [-] Tiktaalik|8 years ago|reply
[+] [-] ErikVandeWater|8 years ago|reply
[+] [-] calgaryeng|8 years ago|reply
[+] [-] blowski|8 years ago|reply
[+] [-] thisisit|8 years ago|reply
A good read on this topic calling these business Regulatory Entrepreneurship :
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2741987
[+] [-] ianai|8 years ago|reply
[+] [-] gaius|8 years ago|reply
[+] [-] delecti|8 years ago|reply
[+] [-] ilamont|8 years ago|reply
There are surely other forms of revenue they can spin up too, but this seems to be pretty straightforward, especially in markets where they have already decimated local taxi firms.
[+] [-] everdev|8 years ago|reply
[+] [-] ivanech|8 years ago|reply
[+] [-] _jal|8 years ago|reply
[+] [-] StevePerkins|8 years ago|reply
[+] [-] Animats|8 years ago|reply
I'll bet that gets trimmed even more if the deal closes. Losses are increasing, not decreasing.
[+] [-] code4tee|8 years ago|reply
They still don’t have a real business (a company kept on life support by constant external cash injections is not a real business).
[+] [-] creator_lol|8 years ago|reply
[+] [-] mtremsal|8 years ago|reply
edit: runway to IPO I meant
[+] [-] lordnacho|8 years ago|reply
[+] [-] bob_theslob646|8 years ago|reply
"according to people with knowledge of the matter.."
How is reporting like this legal? Is this not speculation?
It baffles me that no fact checking/ benchmarking exists for such a major news platform.
[+] [-] mratzloff|8 years ago|reply
As far as legality, there is a system in place; if it's false, it's handled in civil court.