Uber operating at big losses, suggests document leak(bbc.com)
bbc.com
Uber operating at big losses, suggests document leak
http://www.bbc.com/news/technology-33800073
53 comments
There is an older (by ~13 hours) submission on the same topic with numerous comments if you want to checkout the discussion captured then: https://news.ycombinator.com/item?id=10013798
Is anyone surprised by this? Amazon had a net income of (241,000,000) in 2014 and a market cap well over $100 billion...
I know the comparison is a little strange, but these big startups/tech companies (i.e. Uber/Amazon) feel remnant of the old Standard Oil days. Standard Oil would routinely operated at a loss to hamstring competition. A tech company (similarly) can operate at a loss, undercut it's competition, and skirt regulation until it reaches an economy of scale. At which point competition has been decimated and a monopoly (or oligopoly) is established. The ideal scenario for a profit maximizing business.
I know the comparison is a little strange, but these big startups/tech companies (i.e. Uber/Amazon) feel remnant of the old Standard Oil days. Standard Oil would routinely operated at a loss to hamstring competition. A tech company (similarly) can operate at a loss, undercut it's competition, and skirt regulation until it reaches an economy of scale. At which point competition has been decimated and a monopoly (or oligopoly) is established. The ideal scenario for a profit maximizing business.
Uber isn't Amazon. They aren't selling phones and tablets at cost (or at a loss) in an attempt to get customers. They aren't investing in things like AWS or acquiring companies.
> They aren't investing in things like AWS
Sure they are. Their investments in self-driving cars I think is an excellent comparison: self-driving cars will become a fundamental backbone of transportation in the future, kind of like AWS is for the internet right now. Uber's not the only one of course, but if they can grow to lead the pack with research, production and use of a large fleet of self-driving cars, then they are in a very good position for the future.
Sure they are. Their investments in self-driving cars I think is an excellent comparison: self-driving cars will become a fundamental backbone of transportation in the future, kind of like AWS is for the internet right now. Uber's not the only one of course, but if they can grow to lead the pack with research, production and use of a large fleet of self-driving cars, then they are in a very good position for the future.
I've heard talk of self driving cars at uber, but are they really "investing" in them? Self driving cars will be available for anyone to buy within 5 years -- Uber would be better off buying some of those. And so will their competitors.
I'll say this: uber will be the next groupon, zynga, webvan, ... it's laws of physics, we've seen it before -- take a simple but good profitable product with early user growth, a big market (ppl needing cabs, groceries, stuff at discount, addictive entertainment), and then completely kill it through over-investment. Then they use the money to buy the growth they need to justify their ever-higher valuations.
Market growth really looks more like a sigmoid than a hockey stick. Towards the top, near the plateau, it's possible to buy growth to feed the myth of the hockey stick. By doing this, you are incurring a sort of technical (real?) debt that is harder to pay back than people realize, particularly as margins get squeezed by inevitable competition.
In Uber's case, they will also mostly lose in court.
I'll say this: uber will be the next groupon, zynga, webvan, ... it's laws of physics, we've seen it before -- take a simple but good profitable product with early user growth, a big market (ppl needing cabs, groceries, stuff at discount, addictive entertainment), and then completely kill it through over-investment. Then they use the money to buy the growth they need to justify their ever-higher valuations.
Market growth really looks more like a sigmoid than a hockey stick. Towards the top, near the plateau, it's possible to buy growth to feed the myth of the hockey stick. By doing this, you are incurring a sort of technical (real?) debt that is harder to pay back than people realize, particularly as margins get squeezed by inevitable competition.
In Uber's case, they will also mostly lose in court.
Within 5 years? That's crazy talk man.
Are they actually doing that? Or just spending like crazy trying to expand. I find the comparison of Uber and Amazon a bit hillarious. Amazon is very profitable and keeps investing huge amounts every year, if they stop investing they will make a huge profit. Can we say that about Uber?
It simply isn't plausible that Uber will invent and deploy a completely new technology they have no experience with or expertise in. If this is where there valuation comes from and this is why they are running losses people should be afraid for their money. For that matter, give me a few billion, I can definitely cure cancer.
The same could be said for Google. But they just acquired and hired their way to having that expertise.
I'm not holding my breath for great engineering from Uber, but that's a bias and at least I can see that.
If you have insider information you may have more reason than I to have that bias.
I'm not holding my breath for great engineering from Uber, but that's a bias and at least I can see that.
If you have insider information you may have more reason than I to have that bias.
They are investing in expanding and protecting market share. Clearly they are already far and away the dominant player internationally. They're spending wildly on things like driver guarantees, paying fines on behalf of drivers, lobbying etc. If they can spread Uber around the world and defeat regulatory challenges they can become profitable.
what matters is the cash flow. Amazon is cash flow positive meaning that their operations are very profitable, but they are reinvesting this profits into the business
Or rather, they have enough income above cost to pay for reinvestment. This lowers profits, for a reason.
I didn't intend to draw a direct comparison between the two companies. I was merely highlighting that valuation is not solely based on current day financials (it's actually an estimation of future discounted cash flows). That being said... Comparing present day Amazon with present day Uber is a massively unfair comparison. The former is the tech equivalent of an blue chip.
AMZN's the posterchild for why comparing companies by net income alone is flawed.[1]
[1]http://a16z.com/2014/09/05/why-amazon-has-no-profits-and-why...
[1]http://a16z.com/2014/09/05/why-amazon-has-no-profits-and-why...
They're still in an aggressive growth stage, they're supposed to be burning through their cash.
Did anyone really think that $5 Uber pools were money makers?
Did anyone really think that $5 Uber pools were money makers?
They're trying to turn into infrastructure. Of course they're supposed to be burning through cash and I'm happy to help them heh.
Pretty sure they told the Wall Street Journal that they weren't profitable at these prices. No leaked documents required. https://twitter.com/NeilAnAlien/status/627873374505562112
>they're supposed to be burning through their cash
I don't think that they're supposed to, that's potentially dangerous thinking, depending on their business strategy. It's not an uncommon practise though.
I don't think that they're supposed to, that's potentially dangerous thinking, depending on their business strategy. It's not an uncommon practise though.
No, their investors are forcing them to burn through their capital. That's what capital investment is for.
I wanted to ask if anyone seriously believed that Uber was making a profit, while requiring funding at their current scale, but then again what are they spending all that money on?
Sure they need developers, infrastructure, marketing and all the stuff required to run any business, but the drivers and vehicles aren't costing them money. So why do they need $1bn in cash? It would be very interesting to see the Uber yearly budget.
Sure they need developers, infrastructure, marketing and all the stuff required to run any business, but the drivers and vehicles aren't costing them money. So why do they need $1bn in cash? It would be very interesting to see the Uber yearly budget.
Lobbying, lobbying, and lobbying. It’s cheaper to lobby against mandatory insurance than to actually pay for it.
What mandatory insurance does Uber fail to provide?
In Germany, if you transport passengers commercially, your normal insurance does not apply. As, if you operate a car, you have to have an insurance, you have to have a seperate insurance for the cases where you operate a car while transporting someone commercially.
UberPop did not provide those insurances, and instead said the drivers would have to pay them themselves. As that is not acceptable for the drivers, and Uber directly suggests the drivers to just drive without insurance, the courts ruled that Uber will be fined 240k€ for every business interaction its UberPop service does without providing this insurance.
Remember, not all taxi regulations in Europe are crazy, most actually make sense.
UberPop did not provide those insurances, and instead said the drivers would have to pay them themselves. As that is not acceptable for the drivers, and Uber directly suggests the drivers to just drive without insurance, the courts ruled that Uber will be fined 240k€ for every business interaction its UberPop service does without providing this insurance.
Remember, not all taxi regulations in Europe are crazy, most actually make sense.
>Remember, not all taxi regulations in Europe are crazy, most actually make sense.
That's a bold claim. No government is immune from protectionism legislation and corruption, in fact this is the defacto mode of almost all governments. I'm getting a little sick of Europeans thinking their shit doesn't stink. Paris cab drivers were throwing cinder blocks onto cars with impunity last month. You people aren't special, you're just unbelievable statist to the point of not questioning your government. The German laws sound corrupt as well. Everything about the taxi industry is a shitshow. Lets all accept that. This is why Uber is so exciting and popular. The cab industry deserves to be disrupted. Considering political corruption over the decades, this path won't be easy, but its worth doing.
That's a bold claim. No government is immune from protectionism legislation and corruption, in fact this is the defacto mode of almost all governments. I'm getting a little sick of Europeans thinking their shit doesn't stink. Paris cab drivers were throwing cinder blocks onto cars with impunity last month. You people aren't special, you're just unbelievable statist to the point of not questioning your government. The German laws sound corrupt as well. Everything about the taxi industry is a shitshow. Lets all accept that. This is why Uber is so exciting and popular. The cab industry deserves to be disrupted. Considering political corruption over the decades, this path won't be easy, but its worth doing.
I’m not saying the government is immune from corruption, and while I do not think protectionism is bad, the government here does not intervene with this at all.
Uber is not even treated legally as taxi service, but as chauffeur-for-hire service, meaning they only need to do 2 things: Their drivers have a drivers license, their cars are insured.
The drivers license for taxi drivers, chauffeurs and bus drivers costs 55€. fifty-five Euro. That’s nothing.
And one can reasonably demand that cars on the street are insured, as especially in car crashes it is helpful.
Uber is not even treated legally as taxi service, but as chauffeur-for-hire service, meaning they only need to do 2 things: Their drivers have a drivers license, their cars are insured.
The drivers license for taxi drivers, chauffeurs and bus drivers costs 55€. fifty-five Euro. That’s nothing.
And one can reasonably demand that cars on the street are insured, as especially in car crashes it is helpful.
Supposing that the money collected from drives is able to pay for drivers, engineering and digital infrastructure, I'd guess that the big loss comes from the cost of growing to new cities.
Usually there is a international growth employee that comes to a city, establishing an office and looking for key hires such as marketing and operation analysts. At least in Brazil, they also spend a good amount of money hiring security for big events for preventing assaults from regular taxi drivers, lawyers and also paying the bills for when Uber cars are towed away by city law enforcers.
They are constantly issuing vouchers for free and discounted rides, as well as making promotional campaigns where they deliver ice cream or nail-care services for free.
Usually there is a international growth employee that comes to a city, establishing an office and looking for key hires such as marketing and operation analysts. At least in Brazil, they also spend a good amount of money hiring security for big events for preventing assaults from regular taxi drivers, lawyers and also paying the bills for when Uber cars are towed away by city law enforcers.
They are constantly issuing vouchers for free and discounted rides, as well as making promotional campaigns where they deliver ice cream or nail-care services for free.
My guess is regulatory and compliance costs are immense, for every city they expand into. Once they reach some sort of regulation equilibrium though, those costs should subside over time. But this is just a guess on my part
Promotional rides for new users.
Please expand more. I've never used Uber before -- but I'm happy to use it once or twice if I can get it for "free"!
If you sign up with someones referral code then you get free credit (the amount varies depending on country, in England it's £10 at present) and the referrer gets credit too. Anyone with an Uber account can refer people, for example here is my link: http://uber.com/invite/ubercitricsquid
Alternatively you can just search "uber invite" on Twitter and you'll find any number of people hawking their own referral links. There was an article earlier in the year about someone who gained tens of thousands of dollars in Uber credit through taking advantage of the referral system: http://www.businessinsider.com/blake-jareds-50000-uber-credi...
Alternatively you can just search "uber invite" on Twitter and you'll find any number of people hawking their own referral links. There was an article earlier in the year about someone who gained tens of thousands of dollars in Uber credit through taking advantage of the referral system: http://www.businessinsider.com/blake-jareds-50000-uber-credi...
Apologies; I shouldn't have assumed everyone is familiar with Uber. They regularly run promotions to get new users; ordering free ice cream via the app, for example. In addition to that, they have a referral program whereby one customer refers a new customer, and they both get a free or discounted ride. My invite code is xqdr9 if you want to go for a spin.
Basically, they're spending up to about $50 for each pair of users engaging in that way. It's likely the users will eventually become loyal Uber customers, but Uber might not realize that return in the short-term. It's the cost of growing so quickly, and the money they've raised is essentially to fund this.
Basically, they're spending up to about $50 for each pair of users engaging in that way. It's likely the users will eventually become loyal Uber customers, but Uber might not realize that return in the short-term. It's the cost of growing so quickly, and the money they've raised is essentially to fund this.
First time riders can get a $30 ride for free, for example: https://www.uber.com/promo
Depending on the city the promotions may get more aggressive, they also have a Get $25, Give $25 deal for referring new riders.
Depending on the city the promotions may get more aggressive, they also have a Get $25, Give $25 deal for referring new riders.
Here's a promo code for a free ride (helps me, too): SNIMH
When they move into a new town, the prices seem to be really low to attract new users. I think during this initial phase they may actually end up paying for each ride to entice both drivers and passengers.
So, they are ignoring regulations, avoided paying insurance fees and drivers licenses for months, are equally expensive as normal taxis, are paying their drivers badly, and are STILL not profitable?
Well, this is a failed experiment.
Well, this is a failed experiment.
...are equally expensive as normal taxis...
I've only used uber twice, but it was about half as much as a taxi would have been.
I've only used uber twice, but it was about half as much as a taxi would have been.
Regulations imposed to protect incumbents. Evidence on the insurance fees? Evidence on licenses? Evidence on price? Anecdotally in my city they're 300% cheaper than taxi's.
Evidence on paying drivers 'badly'?
Investing in growth > short term profitability (which they could do of they wanted to miss future markets)
Investing in growth > short term profitability (which they could do of they wanted to miss future markets)
The court case in Germany has all the evidence you asked for.
UberPop was banned (not UberBlack, though) because Uber refused to only hire drivers who had a chauffeurs license; because Uber refused to pay insurance.
And anecdotal evidence of the uber pricing is that it’s not a bit more expensive than any other taxi or chauffeur services.
Paying drivers 'badly': There were multiple submissions about this topic on HN, use the search.
UberPop was banned (not UberBlack, though) because Uber refused to only hire drivers who had a chauffeurs license; because Uber refused to pay insurance.
And anecdotal evidence of the uber pricing is that it’s not a bit more expensive than any other taxi or chauffeur services.
Paying drivers 'badly': There were multiple submissions about this topic on HN, use the search.
Regulations are not always imposed to protect incumbents.
This meme is really winding me up lately. Sure, it seems like in the US market there are protections in place for existing firms - tax medallions etc.
This does not apply everywhere and some of the regulations around this industry are genuinely for consumer protection. Uber may well have a case for some of the regs to be reviewed, but you can't just blithely dismiss every rule as protectionist.
This meme is really winding me up lately. Sure, it seems like in the US market there are protections in place for existing firms - tax medallions etc.
This does not apply everywhere and some of the regulations around this industry are genuinely for consumer protection. Uber may well have a case for some of the regs to be reviewed, but you can't just blithely dismiss every rule as protectionist.
how can something be 300% cheaper? do they pay me to take rides?
More details in Gawker's article: http://gawker.com/here-are-the-internal-documents-that-prove...
The profits on a business in a rapid growth period, where everyone expects losses, is not a problem. It's all about expectations and communication with the investors. If this is the plan, then they are on track.
Kalanick is not necessary lying about revenue growth, he just doesn't differentiate between gross or net which is misleading unless you do your own legwork into the revenue numbers.
Not much of a story here...
Not much of a story here...
I think "Leaked documents suggest Uber operating at big losses" would be a clearer headline. I parsed it at first to mean Uber's losses were due to document leaks, or that they suggest leaking documents because of losses(?) Especially when they also have headlines like this:
http://www.bbc.com/news/uk-northern-ireland-31771046
http://www.bbc.com/news/uk-northern-ireland-31771046
Can't say this is at all a surprise. With how aggressive their expansion has been, there's no way they were doing that in the black.
Given their current funding, even at a 400mm/year loss, they could keep going for several years. Maybe that's the plan?
Their plan is to become a household name. A trusted name. Something synonymous is transportation. Then in 5 or 6 years buy thousands of Google-Cars.
If they keep burning cash like this I dont think they will make it 5 years and still be in a position to purchase automated cars without additional funding.
If they keep burning cash like this I dont think they will make it 5 years and still be in a position to purchase automated cars without additional funding.
I think you're on the right track and I think the funding for that push will come from the inevitable IPO, and probably more public offerings after that. But it will be important to be in the black by then. So right now it's all about growth and capturing the market.
Other than marketing, what are Uber's expenses? From the outside, it looks to me like they've successfully outsourced all their costs onto their "independent-contractor" drivers? How are they not profitable?
Is the majority of the loss from R&D? From what I understand Uber is only an automated call center.
What falls under "Cost of Revenue" and "Cost of Sales" in their documents?