Uber's Big Problem: It's a Zombie Corporation That Can't Make Any Money

-edited

Analysts are questioning Uber's viability. Many are concerned it will never make a profit. There's too much competition.

Grandiose Plans

Uber wants to become the Amazon of everything transportation related. But a key question remains: Can Uber Ever Make a Profit?

In Uber’s vision of the future, most people won’t own cars. Riders will hop on electric bikes and scooters for short distances, and summon cars with drivers for longer rides. Takeout dinner will become a vestige, replaced by hand-delivered meals. Garages will empty and parking lots will be ripped up and transformed into grassy parks.

Eventually, robots will rule. Self-driving cars will shuttle people around the roads—and in the air—while drones will make the deliveries. Robotrucks will roam the highways. And Uber will be at the center of it all.

As Uber gets set to go public next Friday in one of the largest tech IPOs ever, Chief Executive Dara Khosrowshahi is trying to sell Wall Street on his vision that Uber will become the dominant force in all forms of transportation.

That mission is threatened by an onslaught of competition from all sides that has intensified in recent months and caused Uber’s loss to balloon to more than $3.7 billion in the 12 months through March—by far the largest loss ever for a U.S. startup in the year before an IPO, according to S&P Global Market Intelligence.

Uber vs Amazon

Amazon started making profits eight years in. Uber is bleeding money badly.

Uber Has to Continually Raise Money

There are no barriers to entry other than raising money. The competition is intense and competitors have learned from Uber's mistakes.

Note the four food delivery competitors in the right panel in the lead chart. There are competitors in the scooter business as well.

Uber has a deal with McDonald's. Uber used to get a 20% commission on deliveries. McDonald's renegotiated the deal. Uber now gets a 15% commission.

Is that enough to make a profit? Year-to-date number provide a resounding no.

Uber Does Many Related Things, All Poorly

If Uber made money in one place it could afford to have cash drains elsewhere.

Compare Google to Uber. Google makes massive amounts of money off search engine advertising. It uses that free cash flow to fund many other endeavors, notable driverless car technology.

In contrast, Uber loses money at everything it does. It is also far behind Google (Waymo) in driverless technology.

Uber's Survival

As long as Uber has the confidence of investors, it can survive by raising money. But if that confidence wanes before Uber makes enough to pay interest on accumulated debt, Uber is toast.

Right now, Uber is a zombie corporation, totally dependent on investors' willingness to keep funding Uber's cash needs.

Mike "Mish" Shedlock

Comments (44)
No. 1-12
Tawdzilla
Tawdzilla

This is the quandary of technology. It all seems like infinite growth is possible, but nobody takes into account all the competition. The barriers to entry are too low. Eventually, the margins shrink to almost nothing.

BoneIdle
BoneIdle

Watch this space.

Uber is being sued in Australia. A class action lawsuit has been filed by 6000 cab drivers, hire car owners and Chauffeur service companies. The lawyers are an international firm. They have massive funds plus are being funded by many overseas companies who are in a similar situation caused by Uber's operations. There is no doubt that Uber and other of these ride sharing organisations are "flaunting the law." Governments have turned their collective backs because of resulting "gig economy" employment figures.

gdpetti
gdpetti

Isn't Amazon's "profits" or operating income due to their govt contracts? Aren't they losing money still on their online ops? Google gave it away for free at first and had to sell the idea that online advertising is great for business, no matter how much has come out in recent years saying the opposite... it's all a con game... some markets are easier to exploit than others.

flubber
flubber

Does anybody know what happened in NYC to all the taxi drivers that had to buy those expensive 'medallions' to be able to operate within the city? There were a number of suicides that took place because the cabbies would never recover the cost of their medallions. The medallion cost was a barrier to entry instituted by the city.

Menaquinone
Menaquinone

A short local uber to work (3miles) is $7.50 or $5.00 if you stand at a designated pickup. How can Uber lose money? Better yet how can people pay that much when a decent old car is $1,000? $30,000 student loans is one answer. Single women with bastard children is another answer. The instant gratification culture ends abruptly, homeless on the mean streets of San Francisco, Seattle, or Chicago. I don't know about you but my taxes cannot afford to support these bums in the style to which they have become accustomed. Food stamps, section 8, and AFDC musts end.

yooj
yooj

“As long as Uber has the confidence of investors, it can survive by raising money. But if that confidence wanes before Uber makes enough to pay interest on accumulated debt, Uber is toast.

Right now, Uber is a zombie corporation, totally dependent on investors' willingness to keep funding Uber's cash needs.” Same is true for TSLA. At least Uber is in an organically growing business; TSLA sells a product that may well have a static demand, the demand won’t increase over time unless there a breakthrough in battery capability. Pricing improvement with existing or evolutionary improvements won’t make the cars more desirable to increasing numbers of consumers. Riding sharing has hugely growing appeal, with an unpredictable demand curve. Growth.

Greggg
Greggg

None of this would be possible with realistic interest rates that actually calculated risk into that rate.

veryauto
veryauto

As a Uber driver, 25% of Uber X and 28% Uber XL turnover have been taken away from Uber that even could not make company profitable? As the negotiation result between ubereates and MacDonald, 15% shall replace the 25%, would be better but still a distance from the level of satisfaction. A ladder decrease from 25%-8% based on income level would be more fair to the Uber driver, which sure be the basic requirements for the profitability of Uber management. Much slim property investment in comparison with Amazon, why Amazon could make profit but Uber doesn't? Problem comes from the management not business style. Suspend list Uber may save the investors money.

Six000mileyear
Six000mileyear

How close to being Zombies are Uber's competitors? Uber and Lyft created the ride-sharing market and could charge higher commissions. If those commissions are not enough to survive, then falling commissions will hurt ALL ride-sharing companies. Early investors have the best chance at profiting, but more recent investors stand to lose.

Casual_Observer
Casual_Observer

WeWork is another zombie. The IPO market is the market of last resort. These companies are going to implode spectacularly and force the Fed to act because of covenenant lite loans being securitized and resold into derivatives. Boom.

KidHorn
KidHorn

Any day now, we'll be flying around with jet packs.

everything
everything

I thought some of these might consolidate sooner, and solve the logistics problems they are creating. But people are getting incredibly rich just bringing it public. It's like a contest to see who's going to go bankrupt first.

Still, Uber is making a classical corporate mistake, they are nothing but a smart phone application running a cab service with employees who are close to operating at a loss themselves.

I guess my point being, where is the money going, it better be into some serious product development that will pay off.