Uber's Massive Cash Burn Problem: 2016 Loss Set To Hit A Record $3 Billion

Tyler Durden's picture

With a valuation of $68 billion as of December 2016 - more than GM and Twitter combined - Uber is, according to the WSJ's Unicorn Database, the most valuable private company in the world.

And yet, despite its eye-popping valuation courtesy of a growth curve which until recently was truly unprecedented (at least until the company's sudden withdrawals from China), Uber has a big problem: an unprecedented cash burn, which if not getting worse with every passing quarter, is certainly not getting better.

Back in August, Bloomberg reported that Uber's first half loss was roughly $1.4 billion ($580MM in Q1 and well over $800MM in Q2) on just over $2 billion in revenue ($960MM in Q1 and $1.1BN in Q2): it was burning approximately $1.6 dollars in costs and overhead (mostly in the form of an ongoing attempt to price the competition out of business by subsidizing drivers using VC cash).

This follows a loss of $2 billion in 2015, and had, as of Q2, lost at least $4 billion in the history of the company. Of this, however, Uber reportedly lost at least $2 billion in China as a result of a failed attempt to penetrate the local market which it abandoned later in the summer, which while sapping growth potential in China, also supposedly stem losses associated with the Chinese market.

Furthermore, the H1 loss came at a time when its fortunes in the US were said to be changing, and the company vowed it was turning a profit in Q1, only to revert back to its money losing ways in Q2 and onward.

As Bloomberg said at the time, "It's hard to find much of a precedent for Uber's losses. Webvan and Kozmo.com—two now-defunct phantoms of the original dot-com boom—lost just over $1 billion combined in their short lifetimes. Amazon.com Inc. is famous for losing money while increasing its market value, but its biggest loss ever totaled $1.4 billion in 2000. Uber exceeded that number in 2015 and is on pace to do it again this year."

Fast forward three months, when overnight Bloomberg reported that Uber's cash burn problems continued, and in the third quarter, Uber lost another $800 million, bringing its total loss for the first nine months of the year to "significantly more" than $2.2 billion. The good (and bad) news is that even as its cash burn grew, so did Uber's revenue which rose even leaving the world's most populous country, and is said to have generated about $3.76 billion in net revenue in the first nine months of 2016, or about $1.7 billion in Q3 revenue and, according to Bloomberg, is on track to exceed $5.5 billion this year. The problem - if only from a cash burn basis - is that when 2016 closes in ten days, Uber is also expected to have burned a record $3 billion.

Another problem, one which comes as less of a surprise, is that growth in Uber's bookings - the total combined value of the fares that riders pay - is slowing down: these came in at $5.4 billion in the third quarter, an increase from $5 billion in the second quarter and $3.8 billion in the first. The slowdown in Uber's bookings growth can at least partially be explained by the company's decision to leave China. Uber said on Aug. 1 that it came to an agreement with Didi Chuxing to exit China in exchange for 17.5 percent of the Chinese company. As part of the deal, Didi invested $1 billion in Uber. Uber's third-quarter financials don't include the business in China, which were part of the previous quarterly results.

But the biggest problem is that despite the growth in revenues, Uber's losses continue to gross in a proportional manner, suggesting that the company has little if any control over its bottom line: as noted above, in Q1 the loss was about $580 million and by Q2 it significantly exceeded $800 million, including China. That number is likely far higher.

Even in the U.S., Uber's home market, the company continues to lose money. After turning a slight profit in the in the first quarter of this year, Uber lost $100 million in the U.S. in the second quarter. The loss increased in the third quarter, the person said. Lyft, Uber's largest U.S. competitor, has promised investors that it will keep its losses below $150 million a quarter.

What does all of the above mean? During Uber's Q2 presentation with investors, the company's head of finance, Gautam Gupta said that subsidies for Uber's drivers are responsible for the majority of the company's losses globally. Which means that Uber continues to cut prices in an aggressive attempt to gain market share. While for now this plan has worked, and Uber has become a dominant player in most venues in which it operates (except, perhaps, the most important one of all China), this strategy only works as long as Uber has has to, literally, burn to capture market share (something which in the end backfired dramatically on Saudi Arabia in a similar experiment over the past two years), and as long as its investors are willing to keep writing equity checks to the company at ever higher valuations - a down round for Uber would be the beginning of the end.

For now, however, the company's main competition - established taxi and transportation companies - are proving resilient, and despite the aggressive cost pressures from Uber, few have been bankrupted, and while the price of a Yellow Cab medallion has plunged from $1.3 million in 2014 to just $250,000 recently, New York City is still not only dominated by taxis, Uber still has a long way to go before it can get even close to catching up to its competition in terms of volume.

Meanwhile, Uber's success will go on only as long as the company has blow billions in hopes it puts its competitors in bankruptcy before its cash runs out. Alas, a few more years like 2015, in which the company burned a whopping $3 billion despite a rising top-line, and Uber's prospects are suddenly starting to look rather shaky. Meanwhile, the winner in this massive "deflationary" battle to the bottom is the consumer, for whom transportation prices have rarely been lower. So dear Venture Capitalists, please continue to fund Uber and subsidize deflation for consumers in at least this part of the economy: it's clear that between the Fed and Trumpflation, there aren't many such deflationary hiding spots left.

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VonPumperDic's picture

 

 

Then I am worth $15 Billion Dollars

New England Patriot's picture

What we're losing in margin we'll make up for in volume.

JungleCat's picture

The plastics industry, young man.

That's where the profits are.

 

SgtShaftoe's picture

Ball Bearings sir.  It's all about ball bearings these days.

ToSoft4Truth's picture

It's a modern Mad Max scene.

 

Too many people puking in the cars...  too many drivers dealing dope to innocent people.  Drunks banging. body fluids left on everything. 

SMG's picture

No no no, you just don't see it.  in the future they will make billions, billions I say!

Troy Ounce's picture

 

Uber is a Wall street company, they can borrow at .25% which nobody else can. So fuck them.

Taxify, people. www.taxify.eu

Or any other in your neighbourhood.

zippedydoodah's picture

Whatever happened to that ball bearing dude from Peru, Do Chen something??

Oh regional Indian's picture

I tried reaching out to Travis, no go. They are not big on innovation. They are big on scaammovation though.

Gouge, bait and switch, destroy and replace....

https://drive.google.com/file/d/0B0GqyuCnQ_RsS1VIQk9aREgzMXM/view

RightLineBacker's picture

1967 began my search for my Mrs. Robinson.

Found many, many during the following years.

Sweet memories.

HRH Feant's picture
HRH Feant (not verified) Dec 20, 2016 11:03 PM

HA HA HA HA HA HA HA HA HA HA HA HA HA HA.

$68 billion for an app? Remember the Dot.com bubble? I do.

lester1's picture

How the hell does Uber lose so much money but all they have is an app to maintain? They make a fortune, where does that money go?

HRH Feant's picture
HRH Feant (not verified) lester1 Dec 20, 2016 11:06 PM

Good question! They create an app that converts a cash business into one that uses a digital interface. Imagine the float!

scraping_by's picture

Uber USA loses money in a flood. Uber Cayman Islands piles up money in mountains.

Or Uber Gibralter. Or Uber Ireland. Or Uber wherethefuckever.

Troy Ounce's picture

 

You might have something there.

They might be busy setting themselves up for a crash. If so, what would you do?

"Nobody could have foreseen this. Really nobody"

Cabreado's picture

Which came first... a corrupt market, or the false means to drive it?

francoismathieu's picture

Extremely simple: user acquisition (ads, incentives & referrals) + supply expansion (again ads & referrals).

RyeWhiskey's picture

Where the money goes? => Lobbyists. Bribes. Judges.

Crawdaddy's picture

Their financials may suck but their IT side has some talented mofos.

https://eng.uber.com/mysql-migration/

RyeWhiskey's picture

just mofos, not talented.

Crawdaddy's picture

Perspective depends on the skillset. I could give two shits about Uber as a company. But I do appreciate people who can break down a problem and walk through solutions.

SloMoe's picture

Uber in so many ways...

Tijuana Donkey Show's picture

If you want to see the future of Uber, go to Austin. Not for being chased out, but for the assclowns who stepped in and charge twice as much. Why? Because that's what shit costs. That being said, this is a race to market share. It's similar to Amazon; go huge or fuck off. Uber is fighting to be the front end to all the self driving cars someday. It's a war for a new market segment, which will be similar to timeshare cars. 

Tijuana Donkey Show's picture

If you are a leader in a new market. The next part of the play is Uber/Lyft and others merging with car companies. You will buy a Ford "subscription," and they will run the whole thing.

Nukerella's picture

No fucking way that I'll buy an Uber-type time-share car. Too many POS Dindu Joe Public will have used it before me, and it will smell of them. I want a self-driving car that I can park in my drive. And override if I want to.

HRH Feant's picture
HRH Feant (not verified) Nukerella Dec 21, 2016 12:40 AM

Isn't that called a bus ride? Or if you are old the dial-a-ride-bus?

I agree with you: no fucking way would I spend one thin dime on a "time share" fucking car. Try selling that shit to the ignorant fucks in India. Sounds like a great idea: in another country more accustomed to communal shit and the idea of communal property.

Did these fucks just fall out of a liberal university and think they could sell this lame crap in a capitalist country? I have never used Uber because just downloading the app you have to agree to give them access to other parts of your phone. Fuck off and die Uber.

RightLineBacker's picture

Same here.

Fuck their app, fuck their puked in cars and fuck their raghead drivers.

securitized_debt's picture

They also don't accept cash as payment. Fuck uber.

Troy Ounce's picture

 

Cheaper competitors are popping up everywhere. And they are cheaper than Uber. Uber takes 25-30% of what a driver takes. Taxify takes 7%.

Uber is a predatory company. Taxify is a service.

Bobportlandor's picture

http://henrymakow.com/

RudolphGiuliani

Official Statement - please read & share:

 

An old friend just called and asked, "Are you finally spilling the beans?" And I told him, "Yes, down to my last heartbeat."

neilhorn's picture

Unless you can point me to your source, then I am going to say you are a lying motherfucker.

Casey Jones's picture

Driving for Uber is a shit gig. My son did it for a few weeks between semesters and found it just didn't pan out. The last straw was when some drunk got in and promptly vomited his dinner all over the Passat. The next day Uber made it so difficult to file his "proof of damages" to collect his "cleaning allowance" that he said fuck it and quit the job. I encouraged him to pack up the barf rags and mail it into HQ. But he's to classy for that shit. If that Unicorn company is still worth 60 billion a year from now I'll eat my hat.

HRH Feant's picture
HRH Feant (not verified) Casey Jones Dec 20, 2016 11:24 PM

I can't stand dealing with the public. Most people walk around like they are in a trance. Having to actually interact with those assholes, and let them in my car (no matter how they smell or if they are drunk or if they are rude) oh hell no!

If people are too fucking lazy to work to buy their own car I sure as hell am not going to cater to them and let them trash my ride! No fucking way.

Uber has been caught stalking riders, too. That's okay, I will pass. A local rental car or taxi suits me just fine if I need it.

SgtShaftoe's picture

"We lose money on every ride but make it up in volume..."

Dr.Carl's picture

The drinking and driving people are what make uber tick

RyeWhiskey's picture

because their gig drivers drink and drive.

Ben A Drill's picture

Ok, fine,

Just tell me where new and old college graduates get a job then.

Mazzy's picture

Um?  Isn't Uber just an "app"?
So how the fuck are they losing money.....and in such spectacular fashion?

Everyone not living in a yurt has heard about them at this point.  Everyone who wants to drive for them already does.  Everyone who wants to take a ride with them probably already uses the service.

I see no room for growth with this company, and only user frustration and customers switching over to other competitors or the taxi business being pushed even further "under the table" as operators will simply give customers their phone numbers and skip the use of the app altogether.

 

 

neilhorn's picture

Pets.com, anyone?

ToSoft4Truth's picture

"walking the mile, walking the last mile"

Northern Lights's picture

Regulation killed Uber in most cities that eventually went on to recognize them as a new business.  Uber only made money when their driver's ran the roads like the wild west.

At one time, you could charge a customer for a trip and 100% of the fair was shared between the driver and Uber.  Now a third party is involved, the municipal government, as well, the driver has to get special car insurance, ect etc.  Now Uber is just another cab company in the city.

neilhorn's picture

Regulation didn't kill Uber. My desire to not ride in a car with someone whom I do not know, who might decide to kill me and take my wallet kept me from calling them.

jamesmmu's picture

Uber is a govt run company? how can it still not broke when it lost 800M a quarter?

lasvegaspersona's picture

'burn rate'...wow..haven't heard that in 2 decades...they doing that again?...and getting away with it?

Shit. In 15 years I'm going to start a bidnis with a 'burn rate'....I guess It takes a generation to forget.

robnume's picture

Maybe Uber should hire that other extremely successful businessman, Elon Musk. I'm sure that he'll turn it around for ya, Travis. Elon's done such a great job making Tesla and Solar City profitable entities. Jeezus. Somebody take away these guys .gov credit cards, puhleeze!!

neilhorn's picture

"the company's head of finance, Gautam Gupta said that subsidies for Uber's drivers are responsible for the majority of the company's losses globally"

If I were an Uber driver I would ask, if I can get Uber to subsidize me, why should I spend money on fuel to go pick up an obnoxious, drunken customer who wants me to blow him or he wants to blow me?

If demand is to increase in this market the customer has to demand less. Quite a quandry, no?

robnume's picture

Just got a new phone. Had an Uber app already on it. I killed it, once and for all. And I stomped on it for good measure.

RightLineBacker's picture

Uber = Dot.com Bubble with wheels.

Hongcha's picture

I'm monitoring the progress of the renovation of the old Sears Building on Broadway in Oakland.  Not too great a rate of speed and the white HazMat poly covering the entire building is a mite ragged.  The speed with which they ready their new HQ (which has been no small selling point for the Realtors selling downtown condos) will be telling.