Is Uber Forgetting the Most Important Thing?

Seems like Uber has been dealing with blow after blow lately.

The latest one is allegations of sexual harassment and a lack of diversity. The US Department of Justice has also announced it will begin a criminal investigation into Uber’s software, as it suspects it is helping drivers avoid transportation regulators.

In Australia, Uber has lost a court ruling and will need to start paying 10% GST tax on trips. and Victoria is looking to introduce a $2 tax per ride that will drive prices up.

It’s CEO, Travis Kalanick, had to quit Trump’s business advisory after criticisms — the same criticisms that Tesla [NASDAQ: TSLA] was able to diplomatically avoid. It has also lost business from the #deleteUber campaign, which started after protests at the airport against the immigration ban.

If Uber has learned anything about the #deleteUber campaign, it’s how quickly people can dump the app. The fact is that Uber is not irreplaceable; there are many other similar apps out there. Including…taxis.

The Twitter campaign has added to the controversy surrounding Uber. The company is not only waging war against other ride sharing apps like Lyft and taxi drivers, it is also fighting over unfair treatment of its own drivers.

Valued at US$69 billion, Uber is the richest start up ever, yet it is also losing money faster than any other tech company. According to Bloomberg, Uber lost US$991 million just in the last three months of 2016. And it has burned a whopping US$8 billion since 2009. That’s a lot of money.

As Uber’s head of global enterprise Travis Bogard told CNBC:

As with all things at Uber right now, we’re focused on building a great experience. And with that, profitability and the other things follow. We want to help businesses embrace the productivity that Uber consumers are seeing.

You see, Uber is concentrating on growing first, and profits second. And they are not planning on gaining profits anytime soon. The thing is, they are revolutionising the industry by undercutting prices.

And it looks like the only way they will be able to turn a profit is by taking the drivers out of the equation.

The book The Upstarts quotes Kalanick saying after riding on Google’s prototype driverless car, ‘The minute your car becomes real, I can take the dude out of the front seat.

They have recently joined with Mercedes-Benz for this purpose.

As reported by USA Today:

Ride-hailing service Uber and Daimler, the parent company of Mercedes-Benz, announced a partnership Thursday to work together on future self-driving cars.

The goal would be to produce cars that can run on Uber’s ride-hailing network.

In a statement announcing the partnership, Uber’s CEO Travis Kalanick didn’t give a timeframe, only saying the program would be operational “in the coming years.”

Uber has been one of the most aggressive companies in trying to develop self-driving cars, envisioning the time when driverless cars prowl the streets of major cities picking up and dropping off passengers.

And, they are not only investing heavily in the self-driving car business, but they have also hired NASA engineer Mark Moore to join Uber in a project called Uber Elevate, which aims to develop a flying car.

There is no denying that Uber has ambitious projects. Yet, on its race to constructing its own vision of the future and wiping out the competition, Uber has forgotten the most important thing in business: profits.

Uber is not alone in losing money. Bloomberg reports that Uber’s rival Lyft has lost US$600 million in 2016.

Is turning a profit through ride-sharing impossible?

Well, there is a company in France doing it: Chauffeur Privé.

Chauffeur Privé has managed to turn a profit every year since they were created in 2012.

How are they doing it? By avoiding massive discounts to customers and bonuses to drivers. And, like Uber, they have focused on business travel, food delivery and shared rides.

We keep our acquisition costs low and our drivers and customers faithful — in the end it shows in our financials,’ founder Yas Hascoet told Bloomberg.

And there is also Spain’s Cabify, which is also profitable. The platform is available in Spain and most of Latin America.

They both target business customers and focus on customer service.

Competitors are catching up, and controversy surrounding Uber is mounting. Can Uber stay ahead of the game long enough to take a profit?

Selva Freigedo,

For Markets & Money

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money