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

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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 (45)
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.