I’ve been following the situation with Uber in France very closely and while I completely understand the protests and anger towards Uber, I also wonder if maybe these taxi drivers should focus on the root of the problem. The reason why Uber exists in the first place is because taxi drivers were a protected and subsidized industry for so long and their service suffered because of it. Today, RSG contributor, John Ince, takes a look at the backlash from France’s Uber protests and delves into Uber’s financials.
Sum and Substance: Uber Technologies Inc. is telling prospective investors that it generates $470 million in operating losses on $415 million in revenue, according to a document provided to prospective investors. The term sheet viewed by Bloomberg News, which is being used to sell $1 billion to $1.2 billion in convertible bonds, doesn’t make clear the time period for those results. The document also touts 300 percent year-over-year growth. The figures show the heavy losses that Uber is accruing as it expands its global car-booking operation amid fierce local competition. “These are substantially old numbers that do not reflect business activities today,” Uber spokeswoman Nairi Hourdajian said in an e-mail. Hourdajian declined to say why the numbers are being used to promote a current funding round.
My Take: Finally, we’ve got some hard, cold numbers on Uber’s operations and they do not look good on the surface. It’s what’s beneath the numbers that’s more important. For example, a $470 million operating loss can be viewed positively – as a sign of boldness. But can also be seen as a sign of recklessness and financially prolificacy. Essentially these numbers affirm what most have suspected about Uber’s management team. They’re risk takers. They continue to double down on their bets that geographic saturation and network effects are the long term keys to success in the rideshare business.
The most glaring omission from this Bloomberg scoop is the time frame for the numbers. If they’re for one quarter of 2014 then Uber has an annual burn rate of almost $2 billion – a very scary number. If they’re for the entire year, then it means Uber’s annual revenues are not particularly impressive – $400 million plus. Either way this term sheet should raise all kinds of questions.
How and when will Uber start generating a profit? Is Uber’s business model flawed? Will Uber’s aggressiveness come back to haunt the company and investors? One can only hope that Uber’s executives and investors know something that these numbers don’t reveal. After all there a lot of smart people who continue to place their bets on Uber. Skeptics will use the $470 million loss as Exhibit A in their case that we’re now officially in a tech bubble. Believers will shrug it off, just as they shrug off all the rest of the bad news about Uber. One thing is for sure, the skeptics and the believers can’t both be right. In the end, some people are going to come out of this looking very smart and others will look really stupid.
Sum and Substance: After days of violent protests and defiance on the part of Uber’s French management, two of the company’s employees were taken into custody for “illicit activity” today. Uber France CEO Thibaut Simphal and Uber European GM Pierre-Dimitri Gore-Coty were arrested for running the company’s ride-sharing service illegally. TechCrunch reports the pair is also being held under suspicion of “concealing digital documents.” Last week, French Interior Minister Bernard Cazeneuve took legal action to shut down UberPOP, the service that employs non-professional drivers to provide rides, in response to protests that blocked key transportation hubs.
My Take: While this development has to be a bit unnerving to Uber’s execs, there is good evidence to believe that it will pass. It might even be a boost to Uber’s operations in France as citizens voice their contempt of this action and show it by amping up their use of the ridesharing service. (See Article Below) Nobody ever said that disrupting an entire global industry would be easy.
Sum and Substance: Lyft has raised $1 billion and is worth about $2.5 billion. Though it is headed toward profitability, it is still spending large sums to attract drivers and passengers. At the same time, Uber is spending even larger sums in an effort to become an on-demand logistics and transportation behemoth, in part by eroding Lyft’s driver and customer base. Can Lyft survive as No. 2? What could make it No. 1? Or should it become a different product altogether? Those are the kinds of existential questions being hashed out in Lyft’s San Francisco headquarters, and among investors wondering whether to bet on the underdog. To better compete, Lyft is adding new services, refining its image, trying to position itself as the more lovable brand for riders and drivers. It has swelled to over 450 employees, with executives hired from Google, Virgin America, Netflix, and Facebook. It just raised a small war chest of its own, including $100 million from the infamous activist investor Carl Icahn.
My Take: This is a good, informative article. The writer attempts to get beneath the surface of the company, and offers some interesting tidbits. Although Lyft has been relegated to a distant second competitor status in the rideshare wars, this article is another piece of evidence that Lyft is winning the PR wars with it’s larger rival.
Sum and Substance: Yes. The same economies of scale apply in the last-mile logistics business, where FedEx, UPS and USPS have managed to achieve supreme geographic saturation. Because these companies have drivers on almost every block in America on a daily basis, their marginal cost to deliver one more parcel is as low as $1.50. And if they have two parcels to deliver to the same house, the cost to deliver the second one falls to almost zero. This overwhelming route density has made it nearly impossible for new entrants to gain a foothold in the parcel business. Even DHL, which has a top-three worldwide parcel delivery network, failed in its bid to enter the domestic market, withdrawing in late 2008. But Uber has a key advantage over even these massive incumbents: While the big parcel players put a driver on every block every day, in metropolitan regions Uber has drivers on every block every minute. While both FedEx and UPS do offer scheduled pickups, only Uber (and perhaps someday Lyft) has the density needed to offer instant pickups and on-demand deliveries. This is a game-changer, as it enables a whole new generation of real-time e-commerce experiences.
My Take: I’m interested in what drivers think about this? Would you want to start delivering packages? Beyond driver buy in, rideshare companies would also have to put in place a sophisticated inventory tracking infrastructure and work out insurance on the deliveries. They’re all kinds of logistical challenges here that currently drivers don’t need to face now and may not want to face in the future.
At the UN’s Jobs Summit, Uber’s Plouffe Says Focusing on Employment isn’t Enough
Sum and Substance: … Uber is better known for avoiding hiring people than solving the global work crunch. In France, taxi drivers were rioting the company; In California, The Labor Commission recently ruled that at least one Uber driver is a company driver, not a contractor. The riots and the ruling could have drastic implications for Uber and their hunderds of thousands of drivers across the globe. I grabbed Senior Vice President of Policy and Strategy of Uber David Plouffe after the UN event to talk to him about what might have been an uncomfortable issue. His response: nonsense. Uber executives are doing more than just creating jobs: They are boosting the livelihood of all their contractors across the world.
My Take: Uber didn’t hire Obama’s former campaign manager for nothing. They wanted someone to be able to articulate Uber’s case before governmental and international bodies. It appears that David Plouffe is doing just that and doing it quite effectively. Hiring Plouffe may turn out to be one of Uber’s wisest investments.
Sum and Substance: Uber has a lot of problems in France, but getting downloads isn’t one of them. When French taxi drivers rioted last Thursday against Uber, I suggested that they were hurting their own cause. Not because local politicians wouldn’t capitulate (they have), but because the lack of taxis would cause people in France to download Uber for the first time. Basically the difference between short-term and long-term strategic thinking. So I decided to take a look at Uber downloads in France, to see what happened during the strike. Not surprisingly, they spiked. In fact, Uber last Thursday was the second-monst downloaded iPhone app in France, which was the first time that had ever happened. Then, on Friday, it hit the top spot.
My Take: This is a fascinating drama. Essentially we’ve got Uber playing the role of populist leader and the citizenry rising up in protest against government action by taking action with their pocketbooks. Could the taxi protests backfire? Sure looks like that’s what happening.
What do you guys think about the week’s top stories?
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-John @ RSG