Just five years ago, Uber didn’t exist, and now the ride-share giant operates in more than 300 cities throughout the world. With such exponential growth, and such secrecy on the part of Uber (they closely guard financials and stats about how many people use Uber each day), even the least business-oriented among us are apt to be curious about how Uber is expanding and growing.
In late June, several news outlets reported details about Uber Technologies Inc.’s latest campaign for investors. Documents Uber provided to prospective investors detailed the company’s operating losses: Uber reports a gross of 415 million and claims it costs them 470 million to run the company. Ever mysterious, Uber did not offer details about when or over what time period the 55 million dollar discrepancy took place, but these numbers raise a lot of questions—questions Uber itself hasn’t addressed publicly. A spokesperson told Business Insider that the figures are, “substantially old numbers that do not reflect business activities today,” but offered no updated numbers and no reason why supposedly old numbers were recently shared with potential investors.
One thing seems certain: Uber’s success (or lack thereof) has potentially big implications for all of us. Success financially means continued growth, which in the case of Uber means, at the very least, an ever-changing landscape of traditional taxis versus rideshare modeled businesses.
SO WHAT DOES IT ALL MEAN
Operating losses, of course, are to be expected with new companies. But with a company like Uber, whose reach is undeniable and whose trajectory appears, for now at least, destined to move only upward, we wondered if the losses were just the cost of doing business, or a sign of something more.
How and when do you see Uber generating a profit?
Campbell: “Uber shouldn’t have any problem generating a profit in the near future. Unlike other business models, they get a cut of every single ride and have very low capital expenses. It’s one of the reasons they’re able to scale so quickly and can spend millions on fighting regulators, sign-up bonuses for drivers, etc.”
Is Uber’s business model flawed?
Campbell: “I don’t think Uber’s business model is flawed but they are clearly spending a lot of money right now. Investors tend to overlook things like driver acquisition costs though for example, which allows Uber to pay bonuses up to $1,000 for new drivers despite 50% of drivers quitting after one year. Typically, investors understand that many of these acquisition costs will come down over time. I think their business model is fine but it’s not perfect and it’s going to take some work to refine it.”
Will Uber’s aggressiveness come back to haunt the company and investors?
Campbell: “Uber is so focused on growth right now, I think they are burning a lot of bridges with drivers and even some passengers. Uber’s own study in January announced that 50% of drivers quit after one year and many who stay don’t look at driving for Uber as a career by any means. It’s more of a stopgap or temporary work situation. I think Uber’s aggressiveness is obviously helping them scale quickly and break into new markets but there are lots of things they are overlooking since they are so focused on growth.”
It seems Uber is following the old adage: you have to spend money to make money. And in Uber’s case, they are clearly aiming to transform not only the ride-for-hire industry but how we think about and use car transportation in general (additions like UberPOOL and UberEats prove Uber aims higher than just a simple taxicab replacement). These aims, and whatever else Uber has up its sleeve, cannot be accomplished without the public on its side. Which is why we see those $1000 signing bonuses for new drivers, we see free rides and promotions offered everywhere we turn. All of this, of course, costs money—almost half a billion dollars, to be exact.
What do you think about Uber’s reported operating losses and plans for expansion? Tell us in the comments.