Hardly anyone “takes a taxi” anymore. Everyone “Ubers”…
The most-hyped IPO since Facebook…
After years of extraordinary growth, Uber launched an IPO on May 10.
An IPO, as you may know, is when a company first sells shares in the public markets. It marks the first time individual investors can buy the stock.
Uber’s debut on the stock market was one of the most hyped financial events since Facebook went public in 2012.
It was on every financial TV. The headlines screamed “this is the next Facebook.”
Everyone was talking about it… I even heard stories of people putting half of their savings in this single stock.
I understand, Uber is a colossal technology company that has become part of everyone’s lives.
It has changed the way we commute. It even disrupted culture.
Who would have thought we would take rides from strangers in their personal cars on a regular basis?
But while Uber is a disruptive company, it’s a terrible business… and its stock is a horrendous investment.
Every business has to eventually make more money than it spends. Period.
Yes, you can sacrifice profit to win customers at the beginning… but eventually you have to make money to cover your expenses and reward investors.
The thing is, after 10 years, Uber is still highly unprofitable. Worse, its losses are growing at astronomical levels.
Last year, it lost $1.8 billion… while last quarter, it lost a whopping $5 billion.
To put this in perspective…
In its IPO, Uber raised $9 billion…
… five of which it has already burned. IN A SINGLE QUARTER.
It’s burning money so fast that it lost more in the nine months leading up to the IPO than Amazon did in its first seven years!
Now, here’s simple math.
If you are losing money as a business, you have two options: cut your expenses or raise prices.
Uber’s biggest expense is driver pay. It pays back to drivers about 80% of all the money it generates.
That means to turn profit, Uber has to cut driver pay… or raise its fares.
And as I’ll explain, neither is possible.
Days before Uber’s IPO, Uber drivers boycotted the company and turned off the app…
They marched the streets in protests demanding higher pay and better working conditions.
Uber drivers now earn an average of $10 to $12 an hour in the US after expenses, according to researchers.
No surprise they are unhappy. The current pay is almost on par with the federal minimum wage.
Uber has no room to cut driver pay. Its drivers would just quit or migrate to Uber’s competitors.
Now, if you are losing money and can’t cut your expenses, your only option is to raise prices.
The problem is Uber is in a stalemate position where it can’t hike its fares.
A never-ending price war with Lyft…
The US is Uber’s biggest and most profitable market. But here, it has one big challenge.
You’ve probably heard about Lyft, Uber’s biggest competitor in the US.
These two companies have battled each other in price wars for years to undercut taxi fares and steal customers from each other.
It’s estimated that they’ve lost a combined $13 billion… and both still have no roadmap to profitability.
In other words, Uber is locked in a price war with Lyft.
As I’ll explain later, the moment Uber raises fares, its customers will switch to Lyft or another competitor.
But Uber’s problems with the competition don’t end here…
Uber can’t keep up with cutthroat competition overseas…
Another way Uber could raise its profits would be to grow globally.
But here, Uber’s prospects look even grimmer.
Bolt, an Estonia-based ride-sharing company, is quickly taking over Europe. In a lot of European cities, it’s a #1 ride-hailing app already.
It’s a heavy blow to Uber’s growth potential in Europe.
For example, London has been one of the biggest, most profitable markets for Uber. For years, Uber enjoyed zero serious competition in this city. Now it has Bolt.
Elsewhere Uber has already lost the battle with local competitors:
It has exited Russia after losing the battle with Yandex.Taxi…
It has exited China after losing the battle with DiDi…Continue Reading