Harry here. Uber’s been on a fundraising tear over the past few years, but it seems like the good times could be coming to an end. After Uber’s disappointing defeat in China, they’ve shifted the narrative to UberEats and emerging markets like Latin America, India and Southeast Asia, but more and more people are starting to worry about their profitability. So as Uber and Lyft shift towards profitability, how will it affect drivers?
Today, senior RSG contributor John Ince takes a look at interesting series on Uber’s bleak operating economics, drivers getting tired of the sharing economy and an interview with an Uber exec who’s decided to take the wheel and drive.
Can Uber Ever Deliver? Part One – Understanding Uber’s Bleak Operating Economics [Naked Capitalism]
Sum and Substance: … By virtue of steamrolling local taxi operations in cities all over the world, combined with cultivating cheerleaders in the business press and among Silicon Valley libertarians, Uber has managed to create an image of inevitability and invincibility. How much is hype and how much is real? As transportation industry expert Hubert Horan will demonstrate in his four-part series, Uber has greatly oversold its case. There are no grounds for believing that Uber will ever be profitable, let alone justify its lofty valuation, absent perhaps the widespread implementation of driverless cars. Lambert has started digging into that issue, and his posts on that topic have consistently found that the technology would be vastly more difficult to develop and implement that its boosters acknowledge, would require substantial upgrading in roads, may never be viable in adverse weather conditions (snow and rain) and is least likely to be implemented in cities, which present far more daunting design demands that long-distance transport on highways.
Tellingly, earlier this month, Bloomberg reported that JP Morgan and Deutsche Bank turned down the “opportunity” to sell Uber shares to high-net-worth individuals. The reason? The taxi ride company provided 290 pages of verbiage, but would not provide its net income or even annual revenues. Uber is currently the most highly valued private company in the world. Its primarily Silicon Valley-based investors have a achieved a venture capital valuation of $69 billion based on direct investment of over $13 billion. Uber hopes to earn billions in returns for those investors out of an urban car service industry that historically had razor-thin margins producing a commodity product. Although the industry has been competitively fragmented and structurally stable for over a century, Uber has been aggressively pursuing global industry dominance, in the belief that the industry has been radically transformed into a “winner-take-all” market.
This is the first of a series of articles addressing the question of whether Uber’s pursuit of global industry dominance would actually improve the efficiency of the urban car service industry and improve overall economic welfare.
My Take: This series of articles may signal that the tide of public opinion in the financial sector has now turned against Uber. In taking broad swipes against Uber, the author has lent credence to the view that Uber is over valued at $69 billion.
Clearly Uber’s investors, both existing and prospective, have to be concerned about a company that is losing money at an unprecedented clip of $2 billion a year. It’s a tall order for Travis Kalanick and crew to convince anyone who now might be listening that they’re about to turn things around, when many signs (which the author details with abundant research) point to worsening economics for the industry. Stay tuned – more on this topic, both from Naked Capitalism and The Rideshare Guy.
People are getting sick of working in the “sharing” economy [Quartz]
Sum and Substance: We may have already reached peak “sharing” economy. … retention is awful: 52% of people working for labor platforms quit within a year, and 56% of those on capital platforms vacate in the first 12 months. Participation in the “sharing” or “gig” economy was once touted as the future of work in America. But the new data from the JPMorgan Chase Institute suggests that isn’t the case. Instead, wages for workers have gotten worse as many of these companies—Uber and Lyft, to pick two examples—have cut pay rates to make prices more attractive to consumers. And the jobs themselves appear to have served as stop-gap measures for people who were unemployed or had fallen on hard times during and after the recession.
… Jobs on these online platforms were always tenuous. … None of this is great news for investors or managers of sharing economy startups. The retention figures should alarm startups that spent heavily to build up legions of independent contractors, then struggled to keep those people sticking around. In early 2015, a paper from influential labor economist Alan Krueger found that only about 55% of Uber drivers remained active one year after starting. That metric appears to be getting worse, not better.
My Take: This article confirms what most veteran drivers already know – Uber and other companies in the “sharing” space have a huge driver churn problem. This is especially problematic for companies like Uber and Lyft that spend so heavily recruiting drivers with sign on bonuses. Looks like many drivers just take the money and run after they discover the job is harder and pays less than they thought at the outset.
This Uber Exec Is Also an Uber Driver [Fortune]
Sum and Substance: This short video is a must watch for all Uber drivers (link above and below): http://fortune.com/video/2016/11/30/uber-exec-is-also-an-uber-driver/
My Take: In a nutshell, the Fortune reporter tosses a few softball questions to Rachel Holt, an Uber exec who heads up North American operations. She takes advantage of this PR opportunity to tout her credentials as a driver who now “feels the pain points” of other drivers.
Holt talks about how Uber just now is learning first hand what its like to be behind the wheel. The first thing that jumps out to me about this interview is, why did Uber wait so long to try to understand how drivers feel? We’re over five years into this gig and understanding the driver’s perspective is fundamental to Uber’s longer term profitability. The interview ends with a big thud when the Fortune reporter asks about tipping. Holt is obviously uncomfortable with the question because she knows her response will undercut everything she has said before in the interview about how Uber now understands drivers’ pain points. Watch it for yourself to see Uber’s PR initiative in action.
Leaked Postmates presentation shows the delivery startup doesn’t expect a profit until 2018 [Quartz]
Sum and Substance: In a year that was unkind to many food delivery startups, Postmates made out relatively well. The company said in late October that it had secured $141 million in a funding round that Bastian Lehmann, its chief executive, described as “super, super difficult.” The fresh capital brought Postmates’ valuation to around $600 million, on par with the number from its previous funding in June 2015. Lehmann wasn’t discouraged. “Flat is the new up,” he told Fortune.
To gain that funding, Postmates pitched a rosy vision of the future. The company forecast a dramatic turnaround over the next few years, trading tens of millions of dollars in losses for an equal amount in profit by 2018, according to a presentation from this summer reviewed by Quartz. At the same time, Postmates offered few details on how it planned to achieve these results. The documents provide a rare window into the fundraising process of one of Silicon Valley’s most hyped startups, and the ambitious numbers these companies often tout as they attempt to secure a deal.
Postmates lost $47 million before interest and tax in 2015, on revenue of $52 million, according to the presentation. The company expected its loss before interest and tax to grow to nearly $60 million this year, even as revenue approached $200 million. It anticipated a much smaller loss in 2017, and earnings before interest and tax of nearly $90 million by 2018. To get there, Postmates told investors its annual sales—i.e., the total volume of food and other stuff that customers order through the platform—would increase nearly 400% over the next two years, translating into an even greater jump in revenue for the company. Postmates expected to clear about $1 billion in revenue on over $3 billion in annual sales by 2018, according to the documents. Postmates’ practical path to achieving this growth is less clear. The company said in the presentation it would make deliveries more efficient, and cut spending on customer service and courier recruitment. Lehmann told Bloomberg in late October that the company plans to expand internationally next year. Quartz reported earlier that month that Postmates was struggling to raise money, and had promised investors “substantial” deal sweeteners to coax its funding round closed.
My Take: What I found most interesting about this article came right at the end where we learn that Postmates seems to be adjusting its financial projections on the fly as actual results don’t measure up with their earlier projections – not that this is all that unusual in the world of business. Projections are just that – they’re guesstimates based on imperfect information. But when a company consistently disappoints, then investors (or prospective investors) need to take note. Is Uber paying attention here?
Uber acquires Geometric Intelligence to create an AI lab [TechCrunch]
Sum and Substance: Ride-hailing requires a lot of machine smarts to maintain a competitive edge, so it’s not surprising to see Uber make a strategic acquisition in the artificial intelligence space. The company has acquired Geometric Intelligence, a startup co-founded by academic researchers with AI experience, and its team will provide the core for a new central AI lab being established at Uber’s SF HQ.
Uber’s doing a lot with machine learning already through its research team in Pittsburgh, but they’re focused specifically on solving issues related to autonomous driving. This new core team will be looking at applications for AI more broadly, with a focus on basic research that’s likely to have impact across a range of potential uses, including things like route management. It’s also yet another sign that Uber wants to be passed among tech bigs like Google, Apple and Microsoft whose interests range beyond a single domain.
Geometric Intelligence’s funding team includes NYU cognitive scientist Gary Marcus, Cambridge machine learning prof Zoubin Ghahramani, University of Central Florida comp science prof Kenneth Stanley and NYU PhD in neurolinguistics Douglas Bemis. Its staff of 15 include a number of high-profile data science and artificial intelligence academics, and all will retain their professional associations with their academic institutions as part of the deal.
My Take: Uber appears to be doubling down on its bets that driverless cars will be the next big thing. This acqui-hire is top heavy in talent that could be key in routing of autonomous vehicles more efficiently. And it could have ancillary benefits to Uber as it attempts to make driver incentives and surges more impactful. Ever wonder how Uber decides what Power Driver Bonus to offer to which drivers each week? Ever wonder how Uber determines which areas surge, when and how much? That’s all part of this mystical, mysterious new world of AI. Uber apparently feels all this is important enough to have an in house AI lab – so they went out and bought one. Hey, when you’ve got billions in the bank, why not?
How to use the NEW Uber passenger app [Million Miles Secrets]
This is a guest post we wrote over on the Million Miles Secrets travel blog all about the new Uber passenger app. There are some interesting changes to the app that affect riders but also drivers so be sure to check it out!
Readers, what did you think of this week’s round up? Any ideas on the future of Uber or Postmates?
-John @ RSG
