Does anyone really think that Uber has enough runway, or could ever get enough, to last until the necessary level of automation is developed? SoftBank though, between this and their incredibly favorable, conditional loan to Theranos really has an eye for distressed assets!
If someone does have a vision for a successful Uber, I’d love to hear it, not to try and pick it apart, just to understand what’s happening.
Uber should easily be profitable without driverless cars. Uber's cost to book rides is pennies, its share of ride revenues is dollars. It's likely profitable or close in north america now.
The naked capitalism analysis was childishly biased, completely done without access to the necessary detail of their financials. Uber under Kalanick poured massive amounts of money into accelerating international market expansion as well as a huge number of side projects of questionable value.
Uber just exited the car leasing business. Yes, Kalanick had Uber leasing cars to drivers, and losing big money doing it. How much has it poured into Uber Eats? How much did it pour into driverless car tech when it will be easily available whenever it becomes good enough for regulators to allow it? Besides the cost, how big a distraction to running the actual business of offering car sharing services were these hundred other endeavors?
The new CEO just has to trim out almost all of the side businesses, and put the focus on finding more cost effective ways to grow Uber's car sharing services world wide. Part of that is not pissing on your own brand by doing sleazy things. In the end, if they remain the world wide leader in car sharing service, installed on the most mobile devices, with the biggest pool of drivers and customers, they'll be very profitable. and making the transition to driverless cars will be easier for them than anyone else because they'll have the biggest brand and customer base.
Even if they pull all of that off, which I'm suspicious of, I don't see what justifies the valuation.
The only way it made sense to me is if Uber achieved the same sort of dominance that Google has in search or Facebook in social networking. But Uber's market share is declining [1], and I just don't see a moat that allows them to be able to extract monopoly/monopsony rents.
Just the other day a friend caught an Uber in a strange city. The driver, who drove for multiple providers, encouraged her to use Lyft instead. And Lyft is hardly the only competitor; starting a pseudo-taxi provider is just not hard. So I think Uber won't be profitable for long even in the driverful car market. And when driverless cars come along, the amount of possible well-funded competitors (BMW, GM, Ford, Virgin, Enterprise, Google, etc, etc) means it's unlikely to get better.
I see some upside, although probably less than you. Even if the market ends up being large, though, that only matters if a) they have a large share of it, and b) competition doesn't drive margins to approximately zero.
Facebook and Google are worth a zillion dollars because there is little competitive pressure. GM's market cap is less than 1/10th of Google's because they face stiff competition. Or compare with airlines. The top 3 airlines by revenue bring in circa $120bn per year versus Google's $90bn. But the market cap of those airlines is only $70bn combined versus $729bn for Google.
I think airlines are good comparison for the pseudo-taxi market. Barrier to entry isn't huge, and lots of well funded people like to play in the space. That means that consumer price competition is cutthroat; profit margins and market caps thus stay low.
But Uber's in a worse position than an airline. A 777 or an A380 costs upwards of $300 million, and you need more than one of them to be a plausible airline. For pseudo-taxis, though, you just need some software (likely available via white label), a few drivers in one city, and a bit of local marketing muscle. It costs 3-4 orders of magnitude less to start a 1-city Uber competitor than a regional airline.
And there are an awful lot of people who want a slice of the future transportation pie, including every single car manufacturer (who can have custom cars at cost), every car rental company (which combined have 2m cars and 20k locations, a number of major tech companies (certainly Google, possibly Apple and Amazon, surely others), and possibly anybody with a strong brand (e.g., perhaps Virgin, GE, Ikea, LVMH).
So no, I don't think Uber's valuation was justified. Neither does Softbank, obviously, or anybody else with the money to buy in. But I think it will go lower still.
I use Uber on a regular basis and have always been happy with the service. I attempted Uber eats twice. I wrote of the first bad experience as a one off, the second time was a sign
Uber trumpets it and crows when they come close to profitability in markets. You're nuts if you think that Uber is profitable in North America.
There is clearly some profitable ride-sharing business in the general Uber model, but it remains unclear that there is a profitable ride-sharing business with enough gross revenue to justify a 10x unicorn business. Uber's main problems with profit margins aren't Uber Eats or even driverless cars, it's in getting their ride volumes up.
I never said their valuation is justified, just that their business model works. The costs of providing their booking service is small compared to the revenues it generates. The only question is how much do they have to spend on end user marketing and driver recruitment.
SoftBank has huge bets in all the global rideshare companies, which includes Grab and Ola as well as Uber and Didi.
The bet is on providing sophisticated transportation logistics in fast growing developing world cities that are currently served by a hodge podge of unaccountable, poorly coordinated small time private transportation companies, and where overwhelmed regional governments are unable to provide sufficient public transportation services.
It's an addressable market of potentially billions of people who will never own cars, and and currently have limited options.
They probably could if they focused on profitable markets. They’ve been burning money because they’ve been obsessed with growth as opposed to profitable growth.
It depends how they hedge that investment. A 30% discount on the basis means you can be very aggressive with your hedge positions.
I'd say it's way too early to speculate yet...but somewhere within softbank, a risk manager is already planning on the whole deal to fail(that's his/her job), and how to keep the effects of that failure from being catastrophic.
Impossible, Overall Uber's network effect is strong, also Uber has a lot of strategic move like Eats, Freight and ATG. I feel Eats and Freight will be huge in near term and ATG is invaluable in long term.
If someone does have a vision for a successful Uber, I’d love to hear it, not to try and pick it apart, just to understand what’s happening.