After Its Much-Hyped IPO, Uber Has Hemorrhaged Billions Of Dollars—Is Its Business Model Sustainable?

After Its Much-Hyped IPO, Uber Has Hemorrhaged Billions Of Dollars—Is Its Business Model Sustainable?

On Monday, ride-hailing service Uber reported a staggering net loss of $1.16 billion for the third quarter. This was much higher than last year’s $986 million loss incurred during the same quarter. That was after Uber reported more than $5 billion in losses due to costs associated with its disastrous IPO, competition from rival Lyft and new business divisions.

Uber was one of the most highly anticipated unicorn IPOs of 2019, but has been a major disappointment to its investors ever since. The stock price dropped sharply after going public. It’s as if the early investors cashed out and dumped it on eager—yet naive—people who bought into the hype and were unfamiliar with the risks attendant with investing in hot-tech growth companies.

Uber touts its grand plan of creating the “operating system for your everyday life,” while investors are getting anxious over seeing profits in their lifetime. With Uber Eats, a new job-matching startup for blue collar workers and other new ventures, it seems that Uber is desperately trying to diversify its business, in an attempt to earn profits.

Uber faces a number of dire challenges, but raising money hasn’t been one of them. Investors initially threw money at the company to fund its meteoric growth. Now, as the company is older and more mature, the stories that it tells investors fall flat. They are concerned about the reality of tough competition from rivals like Lyft. Every Uber ride you take is basically a money-losing transaction for the company. There is a growing movement to reclassify drivers as official Uber employees. Currently, these drivers are not considered employees and are denied benefits that would cost the company a considerable amount of money. States, such as California, are questioning these claims. There is a call to fairly treat drivers and others working in the gig economy as employees. If this happens, Uber’s business model may be crushed. The company will have to afford the drivers all of the benefits that are attended with being an employee. The costs could seriously adversely impact the company. Uber and similar type corporations are deploying lobbyists and spending large sums of money to defeat these measures or gain an exemption from these type of rules.

Uber CEO Dara Khosrowshahi, brimming with confidence, said in a press release, “Our results this quarter decisively demonstrate the growing profitability of our Rides segment. Rides Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) is up 52% year-over-year and now more than covers our corporate overhead. Revenue growth and take rates in our Eats business also accelerated nicely. We’re pleased to see the impact that continued category leadership, greater financial discipline, and an industry-wide shift towards healthier growth are already having on our financial performance.”

Source: Forbes

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