Many companies operate at a loss, but Uber is stretching the boundaries of what’s healthy.
While everyone knew that Uber was going to be posting some tremendous losses late last year, it was anyone’s guess as to how significant it would be. This was especially true due to the new tax benefits, which were expected to give businesses a bit of a boost. Uber has an upcoming IPO, but it’s been losing market traction. Many wonder how much longer the company can hold on and whether diversification will be able to save it.
The Details: Losses Surpass Expectations
Despite bringing in billions in revenue, Uber has lost money: a total of $1.8 billion as of 2018. That doesn’t mean that it’s losing revenue, however. Revenue for Uber is growing, as more people are using rideshare apps. Uber also has a number of other services, such as Uber Eats. But Uber also has many challenges ahead of it and it may not be able to outspend the problem.
Uber, like many other disruptive technologies, likely has every intention of operating at a loss until it can secure its market. Many tech companies do this: they bleed money until they are able to control market share, hike up the prices, and then become profitable. But Uber has been operating at a loss for some time, and some may wonder if there’s a light at the end of the tunnel.
As of mid-2018, Lyft claimed to have 35% of the ride share market, with the bulk of the rest going to Uber. Both companies are growing because ride shareservices, overall, are becoming more popular. Lyft is growing faster, and that’s something that Uber should worry about. That being said, Lyft is also bleeding money—just not to the extent that Uber is.
And there are other problems.
A Two-Front Fight: Regulations and Competition
Uber has repeatedly needed to deal with new regulations that are intended to control or even block rideshare services. These issues will ultimately impact the entirety of the rideshare industry. In NYC, Uber is having to raise its prices and file lawsuits. Traditional cab services are beginning to fight back against rideshare. Those who see rideshare services as an inevitable progression of our technology, though, may assume that eventually these regulations will be struck down and these states will adapt.
Rideshare itself places individuals in a strange territory between legal employee and contractor. While the drivers drive their own vehicles and work when they want, they are still somewhat beholden to the company. As more people attempt to do rideshare as their primary method of income, lawsuits have started to emerge that claim that the drivers are employees and consequently deserve the same rights as employees. In some states, such as Florida and California, Uber has had to answer to the court system.
The Future of the Uber
It’s important to note that the end game for both Uber and Lyft likely has nothing to do with drivers or “rideshare.” Instead, it’s likely that they are currently vying for control over market share so that each of them can eventually transition to driverless, autonomous vehicles—when this technology becomes a reality. When autonomous vehicles become open to consumers, both Uber and Lyft will be able to provide dedicated delivery and travel services without having their largest expense: labor. Right now it’s a war of attrition.
Interestingly, either company wants to erase the other off the map, because then they would scale too fast. Thus it could be argued that giving up market share to Lyft at this point is a strategic investment in the future, but it’s hard to argue that Lyft doesn’t have a lot of positives (such as reputation) when compared to Uber.
Right now the question on most people’s minds is: is Uber a good buy? Since it’s coming up to IPO soon, it’s a good question. Unfortunately, it’s almost impossible to say. Many of the scandals that have rocked Uber had nothing to do with the fundamentals of the company, and therefore couldn’t have been foreseen. Lyft, by comparison, has emerged as the far less volatile investment. And it isn’t an either or question. If you assume that rideshare (or autonomous vehicles) are, indeed, the way of the future, then there’s more than enough market for both of them.
Regards,
Ethan Warrick
Editor
Wealth Authority
