Why Uber Is Losing Money - YouTube

Uber is going public at a valuation of over $75 billion.

The world's biggest ride-hailing business is hitting the

market just weeks after smaller rival Lyft.

When you think about the excitement surrounding Lyft, multiply

that for Uber.

This is more global.

It's diversified.

So there's certainly a lot of excitement from public market

investors.

Uber is far from making money.

It reported an operating loss of $3 billion in 2018 after

losing more than $4 billion the prior year.

During its roadshow, Uber compared itself to Amazon as it

explained its money-losing business to investors.

Why Amazon?

Because the now wildly successful company didn't make a profit

for several years after it went public in 1997.

But Uber is n't Amazon.

For one, Amazon had little competition in the e-commerce space

when it IPO 'd.

It also had a valuation of $438 million compared to Uber's $75

billion. Still, some investors are far from being scared away

from Uber's red ink.

In the U.S.

alone, Americans spend about $1.2

trillion on personal transportation and Uber really is at the

forefront of this move from a personal car ownership model to

more of transportation as a service.

And I think investors really do believe that humans will one

day forgo owning their physical cars in favor of an on-demand

service like Uber or Lyft.

Uber was founded as UberCab in 2009 by Garrick Camp and Travis

Kalanick.

The app launched in San Francisco in July 2010.

It allowed users to hail, via an app, black town cars but was

still more expensive than taking a taxi.

It then dropped cab from its name and launched in New York

City and Paris.

But in 2012, another ride-hailing company entered the market.

You had Lyft come into the picture and they came around and

said you know we're going to give Uber some competition on the

lower priced end of things.

And from that came UberX, which is now sort of Uber as we know

it, the cheap alternative to hailing a taxi.

Uber now operates in 63 countries, 700 cities and has completed

over five billion rides.

There are also more than three million Uber drivers worldwide.

Taxis accounted for 99 % of ride-sharing trips in the U.S.

in 2012.

And now, with the rise of Lyft and Uber, taxis represent just

12.5%. So why is Uber losing so much money?

First, they have to pay drivers.

And now drivers are asking for more.

Drivers united, will never be defeated.

Increased competition with Lyft has created tensions with

drivers who complain of low pay rates and unfair compensation.

It's expensive to navigate the regulatory environment in each

city and to ensure the business.

Insurance costs for Uber ride-sharing products increased $1.3

billion from 2016 to 2017.

Credit card processing fees and driver incentives also drain

the company of money.

On the rider side, they also have to make it appealing.

Entice the rider to come to Uber and use its platform instead

of going to Lyft.

So in this way, Uber and Lyft both spend millions and millions

of dollars to attract and keep people on their platforms.

Uber's growth to number one has been riddled with controversy.

In 2017, after multiple scandals, Uber founder Travis Kalanick

stepped down.

Uber CEO Travis Kalanick is out, after shareholders staged a

revolt.

Meanwhile, Lyft gained a reputation for being the friendlier of

the two.

Uber has certainly had a more troubled history than Lyft.

Lyft has had a better reputation with drivers for instance

they introduced tipping from the very beginning, Uber only

introduced tipping a few years ago.

At IPO, Lyft was valued at just over $20 billion but its stock

has had a rocky start.

The Lyft IPO has been a bit challenging and the revenue

multiple that people are using to value Lyft, people are well

sort of look to apply that to Uber as as a way to get a sense

for valuation.

Also, some of the trends that were outlined in Uber's S-1

filing can raise some questions.

Specifically, the fact that you've seen a pretty sharp

slowdown in revenue growth at Uber over the last few quarters

and significant declines in its take rate.

Uber's total revenue for 2018 was $11.3

billion with ride-sharing bringing in over 80%.

Uber Eats is the second biggest source of revenue for the

company at $1.4

billion.

But Uber has put a lot of focus on diversifying into bike

sharing, scooters, Uber Freight, air taxis and even its own

autonomous driving technology.

All of which require a lot of investment and has slowed growth

towards profitability.

If you believe that this industry and Uber and Lyft are going

to be profitable, you believe that at some point in the future

self-driving cars are going to help them get there.

Uber's Advanced Technologies Group, or ATG, which works on

self-driving vehicles, recently announced a $1 billion

investment from SoftBank, Denso and Toyota.

A sign investors may see it's serious about long-term growth.

ATG took a hiatus after one of Uber self-driving cars killed a

woman in Arizona last year.

Uber's rapid growth in many directions has meant a lot of

spending. However, some analysts predict Uber will become

profitable eventually.

In terms of when Uber could achieve profitability, we're still

several several years away.

I'd say four or five years away at least.

Uber is part of a big wave of Silicon Valley companies rumored

to go public in 2019.

So will it be a smart investment?

Uber really is the number one player in virtually all of the

markets where it operates a ride-sharing business and an

online food delivery business.

And over time that number one kind of leadership position in

those respective markets should translate into a more

resilient business, a more profitable business.

I think the important thing for investors to know is that this

is a bet on a company that aims to be the so-called Amazon of

transportation. They have humungous aspirations.

They don't wanna focus on just the U.S.

market. They want to be global.

They want to be diversified.

They're looking at a $5.7

trillion addressable market.

So when you look at Uber, you're really betting on the future

of transportation not just ride sharing.