“Uber had $6.6 billion in cash at quarter's end, down from around $7.2 billion at the end of Q1 ... Uber's global ride-share business was margin positive last quarter, which is a flip from Q1.”
Uber is on a loss run rate of $2.4 billion annually mainly from the US market. The questions become:
* Given that global is positive, what is the loss in US? What will it take to flip US to positive? What will Lyft do?
* Can Uber keep global markets positive or will they have similar challengers that will force additional investment?
Uber isn't losing $2.4 billion primarily in the US market, you've got it the wrong way. Their biggest losses are from the international side of the business, spending on that build-out effort.
Margin positive internationally is not the same as earning a profit after all expenses. What they're talking about is international revenue exceeding international losses finally (the US market has been above that line for a long time).
"The $645 million is adjusted EBIT, while Uber's Q2 EBITDA loss was $534 million (down from $598 million in Q1). Uber's global ride-share business was margin positive last quarter, which is a flip from Q1."
The context around EBIT/EBITDA implies that they are discussing operating margin and not gross margin. Can you clarify what major expenses you believe would be excluded?
You can't just extrapolate out to 2.4B. Just one quarter ago, that same extrapolation would have been more than 2.8B. They are improving their efficiency while increasing their revenues. I wouldn't be surprised if that loss run rate is $2.0B flat by end of Q4 while gross revenues continue to rise.
Lyft on the other hand has losses almost twice as high as Uber's relative to gross bookings. People accuse Uber of buying market share, but the truth is that Lyft is the one actually buying market share instead of earning it.
Sure you can. It is not obvious what the right methodology would be:
* Should you assume that losses are going to get worse? Lyft raised their largest round so far: $600M at $7.5 Billion. Presumably, they are going to use that money to get even more aggressive. I hear that some US markets are already a mess for Uber. Others are good.
* Should you assume it is going to get better? In the past quarter it has, so you might want to assume that it will continue. Also, I don't know if I trust Uber's financial reporting. This is clearly a PR move and you have a lot of choices in private accounting.
Assuming steady state does not strike me as an unreasonable way of forecasting.
Losses may or may not get worse. AFAIK, they have gotten better every quarter since China was sold off. Assuming steady state or steady state of change are both reasonable ways of forecasting. A strong trend line spanning several quarters better supports the latter in this case.
For what's its worth, I recently saw losses as a percent of gross bookings posted elsewhere: Lyft at 13% vs Uber at 8.5%. Are you assuming that Lyft will increase subsidies after this new round of funding? If so, that will only worsen its losses as a percent of gross bookings. Furthermore, that isn't Lyft's biggest round. They raised $1B in January 2016.
Uber just needs to remain more efficient than its competition in all markets, which is easier to do with global operations and multiple business lines that are easy to scale out.
I think there will be a big pivot from car ownership to rentals... maybe add up insurance, maintenance, and leasing fees to get to $600-1000 a month for unlimited car-service.
Automated cars will be summoned by phone, arrive when you schedule them, and go pick up others when not needed..
Pretty sure a lot of the car companies are planning something like this, I know tesla is. Uber wants to hold out till their self-driving cars pay off, but I think it'll be a much more crowded space by then, and they might be dead in the water before hitting pay-dirt.
I think uber's in a death spin, not sure it can pull out.
> I think uber's in a death spin, not sure it can pull out.
that is not evidenced at all in their financials though. Their losses are down and their revenue is up. They are doing exactly what is expected of them if they hope to be profitable in the next 18 months or so.
There are just over a billion vehicles in the world today. Tesla can produce like 20k per month.
Assuming 3/4s of those vehicles are consumer vehicles and we need 1/3 as many vehicles to service the transportation needs of humanity, that's 250M autonomous vehicles.
It would take 1000 years for Tesla to replace the current fleet. Toyota and Volkswagen, the largest automakers can produce 10M units per year. Assuming either had a monopoly on self-driving cars, it would take either of them 25 years.
Manufacturers like Volkswagen and Toyota are going to have autonomous vehicles faster than Tesla builds out the capacity to manufacture 10 million cars per year. Tesla would need to buy or partner with one of the big automakers to accelerate their growth, and even then they will be constrained by the cost of cooperation and scaling battery manufacturing.
Software and hardware tech licensing is going to be the name of the game and if you have both those and represent the demand (riders), you're easily in the lead.
Don't get me wrong, Tesla is going to do very well for itself. It just doesn't stand a chance competing head to head against Uber all things considered.
Maintenance is likely to be a lot higher. You are in a car without a driver. What is to stop you spilling crap all over the seats and not cleaning up? A good deal of Taxi use comes through people drinking and not being allowed to drive.There are other benefits to having someone physically drive the car.
(I think this applies even more to Amazon's automated deliveries via robot / drone - whats to stop the stuff getting stolen?)
Growth companies are valued on future expectations and not on current financials. You have to believe that the economics will improve for Uber.
The $68 billion Uber valuation is also not real in the sense that investors have liquidation preferences and multiples. Employees don't and have the inverse of what is given to investors. The real value is some fraction. They have also stumbled like no other company before them. This probably has some impact.
Or if they become the self-driving service of choice, they can lower fares and capture a larger portion of the broader transportation market and make a profit.
not necessarily true. Uber is developing relationships with the regulators in all of their markets, a highly local endeavor. It's possible, even likely, that they are going to use these relationships to their own advantage when launching self driving cars in different markets.
This "raise prices after crushing competition" piece is something that practically never happens unless you manipulate governments to institute rules that preserve Monopoly. Even then as SpaceX & Uber showed, rent seeking gets punished by market.
If they raise prices significantly, someone else will come at a lower price with lower service quality (as already happens in Asia) and take a share of more price sensitive segment of the market.
Say they have a break through in self driving cars and cut the fee they're paying to drivers down to just the depreciation of the vehicle. They'd be profitable immediately.
Even if they make a breakthrough in self-driving cars tomorrow, it could still be many years before laws are updated to enable them to legally operate self-driving cars (without drivers present) in all the different states and countries that they do business in. Insurance companies would also need to be willing to insure these cars before they'll be legal to drive.
To operate self-driving cars, they'd need to buy or finance the vehicles, which is a huge expenditure. They'd also need to hire people to clean and maintain them, since drivers wouldn't be doing that anymore. They'd have to bear the cost of fuel (whether gas or electricity) and insurance, which drivers currently pay for. Once they pay for all that, would it cost more or less than paying a driver who provides their own car? I certainly don't know.
Also, even if all the factors noted above balance in favor of self-driving cars in the long term, it may be a while before self-driving cars come down enough in price to compete with human drivers in conventional vehicles - it takes significant engineering work to evolve a design from a prototype to mass production.
The question is whether Uber can stay in business long enough to reap the benefits of self-driving cars. I don't think the answer is obvious.
Simple - autonomous vehicles. It's the single largest line item of COGS. Reduce a COGS line by let's say 25% for revenues of $10B and you all of the sudden have another $2.5B in extra profit.
EDIT - I totally simplified that math (and it reads odd as stated), but you get the point.
Autonomous is has need been the answer to me. It has always seemed like a way to raise more money using the latest fad. With autonomous you have massive up front capital costs and then you have to hire staff to service the cars.
Also, city and state regulators are not even close to allowing massive fleets loose on the roadways. Uber will need 5+ years of burn or positive cash flow before they can even begin to rely on autonomous cars and that is only in easy to navigate dense cities of the world.
It improves every quarter for them. Every time they open a new market they have to spend hundreds of dollars per driver in recruitment incentives. Once they build out the market, they start making positive margin. If you try to grow internationally as fast as possible, that means tons of money on driver recruitment and building market infrastructure before the revenues come in.
If Uber wanted to be profitable they could stop expanding into new markets, kill Kalanick's Krazy side businesses, and would likely be profitable the next quarter.
The long term goal for Uber is to build a global monopoly of self-driving taxis in a world where no one owns their own car. That would be worth trillions.
For a long time they looked like they might manage it, but things haven't been going well lately. The latest valuation doesn't factor that in.
Even if they don't get the first self driving vehicles on the market they're still in the best position to partner with whoever does and make slightly less but still a fuck tonne of money.
I find it fascinating that people talk about self-driving cars as though it were a binary thing, like either you have an entire fleet of them or you don't and that this happens in all markets all at the same time.
Any proper analysis would consider the myriad ways things play out depending on how gradual and uneven self driving cars will come to market.
And even if L5 were available tomorrow, it would have to be cheap enough on a unit basis manufacturable at scale to compete with driver income plus cost of a Prius over 3-4 years. In the US the unit economics might already be in favor of an L5 vehicle, but in developing markets that may not yet be the case. Furthermore, you don't just replace entire fleets to service entire economies over night.
And even at that point, you need to build out all the infrastructure to support and maintain these vehicles.
Gradual changes always favor the incumbents if the incumbent is aware of such changes and planning for them.
> Uber's global ride-share business was margin positive last quarter, which is a flip from Q1.
I think this means that the cost associated with an avg ride was less than Uber charged for the ride.
"R&D overhead" is all the software engineers and PMs and UX people and VPs. Let's say there are 5,000 of those and each costs $300k/yr on avg, that's $1.5B/yr + offices, servers, etc. which they're losing every year.
If they can further scale up the number of rides (and keep it margin positive), eventually they'll be able to finance the "R&D overhead" from the margin, and actually be overall net positive. (Or, bring down the costs by getting rid of drivers. Or, push into adjacent markets like food.) If you believe in this, then Uber is worth more than -X to you. (Lots of people actually do, so it's actually worth sth like $50B+.)
A combination of growth rate, and positing where Uber will be once they stop spending money on things like self-driving cars, etc, which are very expensive with no revenues yet. It's similar to Amazon that for years only had minimal profits because they were spending so heavily on new products. The idea was that Amazon could generate tons of money by simply curtailing their spending, which fuels the speculation on their share price.
I'll have a stab. Value = what someone will pay. what someone will pay is X% less than what it will be worth in Y-Z years (where X is usually 50% and Y and Z are between 5 and 10).
So, what will Uber be worth?
The hyper-growth startup model is double revenue yearly, while adding 50% to costs. Lets do the maths using simplified numbers: Uber makes $7 billion per year, and loses $3B, for total costs of $10B.
So, if you assume a P/E ratio of 25, Uber would be worth $137.5 in 2 years. Would I pay $62B (if I had it) for a company worth $137B in two years? Imma go ahead and say yes!
Now, 100% growth on 50% cost increase may not hold, but as long as revenue growth > cost growth, Uber will inevitably be profitable. The question is by when, and profitable to what $ value, and at what multiplier? double revenue, 175% costs, and a 35 multiplier, and Uber is worth $200B in 4 years.
I'm interested in how the tipping will enable Uber to really focus drivers on service. Tips are likely to be a pretty strong indicator for what customers want, and may be optimized by Uber should they choose to do so. I assume that 100% of the tip amount goes to the driver, but is that actually true? Uber does have an expense in adding the feature to it's app & operation.
Uber will collect a lot of data that they can share with drivers regarding what they can do to increase tips. Basics like keep a clean car, or how much to chat with customers, or perhaps even customer-specific services like 'don't speed at all', or 'get out and open the door' for them, or, 'likes the car temp at 80 degrees...'.
Moreover, it can indicate what cities or localities tip best, what time of day, what types of people tip well, ...
I am trying to think of another platform better suited to recording this type of data, but it's not coming to mind. Will Uber use it to benefit customers and drivers, or, abuse it for it's own gain?
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[ 3.0 ms ] story [ 91.2 ms ] threadUber is on a loss run rate of $2.4 billion annually mainly from the US market. The questions become:
* Given that global is positive, what is the loss in US? What will it take to flip US to positive? What will Lyft do?
* Can Uber keep global markets positive or will they have similar challengers that will force additional investment?
Margin positive internationally is not the same as earning a profit after all expenses. What they're talking about is international revenue exceeding international losses finally (the US market has been above that line for a long time).
The context around EBIT/EBITDA implies that they are discussing operating margin and not gross margin. Can you clarify what major expenses you believe would be excluded?
Lyft on the other hand has losses almost twice as high as Uber's relative to gross bookings. People accuse Uber of buying market share, but the truth is that Lyft is the one actually buying market share instead of earning it.
* Should you assume that losses are going to get worse? Lyft raised their largest round so far: $600M at $7.5 Billion. Presumably, they are going to use that money to get even more aggressive. I hear that some US markets are already a mess for Uber. Others are good.
* Should you assume it is going to get better? In the past quarter it has, so you might want to assume that it will continue. Also, I don't know if I trust Uber's financial reporting. This is clearly a PR move and you have a lot of choices in private accounting.
Assuming steady state does not strike me as an unreasonable way of forecasting.
For what's its worth, I recently saw losses as a percent of gross bookings posted elsewhere: Lyft at 13% vs Uber at 8.5%. Are you assuming that Lyft will increase subsidies after this new round of funding? If so, that will only worsen its losses as a percent of gross bookings. Furthermore, that isn't Lyft's biggest round. They raised $1B in January 2016.
Uber just needs to remain more efficient than its competition in all markets, which is easier to do with global operations and multiple business lines that are easy to scale out.
Automated cars will be summoned by phone, arrive when you schedule them, and go pick up others when not needed..
Pretty sure a lot of the car companies are planning something like this, I know tesla is. Uber wants to hold out till their self-driving cars pay off, but I think it'll be a much more crowded space by then, and they might be dead in the water before hitting pay-dirt.
I think uber's in a death spin, not sure it can pull out.
that is not evidenced at all in their financials though. Their losses are down and their revenue is up. They are doing exactly what is expected of them if they hope to be profitable in the next 18 months or so.
There are just over a billion vehicles in the world today. Tesla can produce like 20k per month.
Assuming 3/4s of those vehicles are consumer vehicles and we need 1/3 as many vehicles to service the transportation needs of humanity, that's 250M autonomous vehicles.
It would take 1000 years for Tesla to replace the current fleet. Toyota and Volkswagen, the largest automakers can produce 10M units per year. Assuming either had a monopoly on self-driving cars, it would take either of them 25 years.
Manufacturers like Volkswagen and Toyota are going to have autonomous vehicles faster than Tesla builds out the capacity to manufacture 10 million cars per year. Tesla would need to buy or partner with one of the big automakers to accelerate their growth, and even then they will be constrained by the cost of cooperation and scaling battery manufacturing.
Software and hardware tech licensing is going to be the name of the game and if you have both those and represent the demand (riders), you're easily in the lead.
Don't get me wrong, Tesla is going to do very well for itself. It just doesn't stand a chance competing head to head against Uber all things considered.
(I think this applies even more to Amazon's automated deliveries via robot / drone - whats to stop the stuff getting stolen?)
The $68 billion Uber valuation is also not real in the sense that investors have liquidation preferences and multiples. Employees don't and have the inverse of what is given to investors. The real value is some fraction. They have also stumbled like no other company before them. This probably has some impact.
If you put it like that, no government will stand for that. They can even look good on jobs while destroying uber.
If they raise prices significantly, someone else will come at a lower price with lower service quality (as already happens in Asia) and take a share of more price sensitive segment of the market.
To operate self-driving cars, they'd need to buy or finance the vehicles, which is a huge expenditure. They'd also need to hire people to clean and maintain them, since drivers wouldn't be doing that anymore. They'd have to bear the cost of fuel (whether gas or electricity) and insurance, which drivers currently pay for. Once they pay for all that, would it cost more or less than paying a driver who provides their own car? I certainly don't know.
Also, even if all the factors noted above balance in favor of self-driving cars in the long term, it may be a while before self-driving cars come down enough in price to compete with human drivers in conventional vehicles - it takes significant engineering work to evolve a design from a prototype to mass production.
The question is whether Uber can stay in business long enough to reap the benefits of self-driving cars. I don't think the answer is obvious.
EDIT - I totally simplified that math (and it reads odd as stated), but you get the point.
Also, city and state regulators are not even close to allowing massive fleets loose on the roadways. Uber will need 5+ years of burn or positive cash flow before they can even begin to rely on autonomous cars and that is only in easy to navigate dense cities of the world.
If Uber wanted to be profitable they could stop expanding into new markets, kill Kalanick's Krazy side businesses, and would likely be profitable the next quarter.
For a long time they looked like they might manage it, but things haven't been going well lately. The latest valuation doesn't factor that in.
Any proper analysis would consider the myriad ways things play out depending on how gradual and uneven self driving cars will come to market.
And even if L5 were available tomorrow, it would have to be cheap enough on a unit basis manufacturable at scale to compete with driver income plus cost of a Prius over 3-4 years. In the US the unit economics might already be in favor of an L5 vehicle, but in developing markets that may not yet be the case. Furthermore, you don't just replace entire fleets to service entire economies over night.
And even at that point, you need to build out all the infrastructure to support and maintain these vehicles.
Gradual changes always favor the incumbents if the incumbent is aware of such changes and planning for them.
I think this means that the cost associated with an avg ride was less than Uber charged for the ride.
"R&D overhead" is all the software engineers and PMs and UX people and VPs. Let's say there are 5,000 of those and each costs $300k/yr on avg, that's $1.5B/yr + offices, servers, etc. which they're losing every year.
If they can further scale up the number of rides (and keep it margin positive), eventually they'll be able to finance the "R&D overhead" from the margin, and actually be overall net positive. (Or, bring down the costs by getting rid of drivers. Or, push into adjacent markets like food.) If you believe in this, then Uber is worth more than -X to you. (Lots of people actually do, so it's actually worth sth like $50B+.)
So, what will Uber be worth?
The hyper-growth startup model is double revenue yearly, while adding 50% to costs. Lets do the maths using simplified numbers: Uber makes $7 billion per year, and loses $3B, for total costs of $10B.
Year1: Revenue = $7B * 2 = $14B. Costs = $10B * 1.5 = $15B. Loss = $1B
Year2: Revenue = $145B * 2 = $28B. Costs - $15B * 1.5 = $22.5B. Profit = $5.5B
So, if you assume a P/E ratio of 25, Uber would be worth $137.5 in 2 years. Would I pay $62B (if I had it) for a company worth $137B in two years? Imma go ahead and say yes!
Now, 100% growth on 50% cost increase may not hold, but as long as revenue growth > cost growth, Uber will inevitably be profitable. The question is by when, and profitable to what $ value, and at what multiplier? double revenue, 175% costs, and a 35 multiplier, and Uber is worth $200B in 4 years.
Uber will collect a lot of data that they can share with drivers regarding what they can do to increase tips. Basics like keep a clean car, or how much to chat with customers, or perhaps even customer-specific services like 'don't speed at all', or 'get out and open the door' for them, or, 'likes the car temp at 80 degrees...'.
Moreover, it can indicate what cities or localities tip best, what time of day, what types of people tip well, ...
I am trying to think of another platform better suited to recording this type of data, but it's not coming to mind. Will Uber use it to benefit customers and drivers, or, abuse it for it's own gain?