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Friday 26 August 2016

Uber - Where’s The Money Going?

Driver and rider matching service Uber was Founded back in March 2009 - almost seven and a half years ago. It enjoys a market valuation of around $69 billion. It is backed by the likes of Google and Goldman Sachs. The app, which enables riders to call a driver, might have been expected to have paid for itself by now. Uber charges its driver around 20% of their incomes as a commission. They have hundreds of thousands of drivers.
So it may come as a surprise to some industry watchers to know that Uber is losing money, not just occasionally and in trivial amounts, but consistently, and billions. Worse, the losses appear if anything to be getting worse over time. In 2015, the company lost “over $2 billion” (how much more is not known). But in just the first six months of this year, Uber has lost $1.27 billion. Net revenue was just over $2 billion.

What was the reason for the loss? “The subsidies Uber grants its drivers was the main reason for the loss, finance head Gautam Gupta told investors in a quarterly conference call, Bloomberg said, citing sources”. Subsidies? What subsidies? Uber drivers are self-employed. They pick up the cost of their cars, insurance, licensing, tolls and congestion charges, and of course traffic fines, themselves. What subsidies?

Moreover, where can all the money be going? The app should need little more than customising for each new area in which Uber operates. Drivers just activate the app when they become available, deactivate it when they are not. Otherwise the whole thing should more or less run itself. At first, the scale of the losses is mystifying.

And then the potential reasons for those losses come to the fore. One, Uber has secured finance from a number of sources over the years. The conditions attached to loans and parcels of debt would be interesting to see - especially the rate of interest being paid, and for how many years Uber has been locked into the deal.

There is more: Two, Uber is embroiled in legal disputes with a variety of Governments, its drivers, and other groups on a regular enough basis for this to rack up significant costs. Another item that would be interesting to see - and in full - is the scale of the lawyers’ bills, not just now, but those pertaining to current legal actions, due for payment later.

On top of that is Three, the cost of all that PR and lobbying. Uber is in a constant PR war against established taxi and minicab operators, employing specialist PRs and lobbyists to persuade everyone from the ordinary folk all the way up to the top of Government that they should be allowed to have the playing field tilted in their favour. And then there is the constant rumour that journalists have been bribed to generate favourable copy.

Yes, it would be most revealing to see what Uber is having to pay for all that finance, the cost of its mammoth legal bills, and the whole PR and lobbying circus that it needs to keep on the road in order to convince authorities to let the show roll on.

All those self-employed one-man and one-woman bands in their London black cabs might find it interesting to see just how much Travis Kalanick and his pals are prepared to spray up the wall in an act of vindictiveness, just to put them out of business.

1 comment:

jelltex said...

And what ad was under this post? Yup, one looking to recruit driver for Uber!

"No PCO licence? No problem, we'll help!"

Certainly, Seamna Staines' blog had plenty of favourable copy before the site stopped being funny, so, a lot of truth in this I suspect.