Have you ever wondered what actually made former Uber CEO Travis Kalanick step down from Uber? In this week’s round up, senior RSG contributor John Ince uncovers the letter that may have caused Kalanick to step down, plus more news on how Uber achieves profitability, its troubles in other countries, and more.
Uber’s Secret Gold Mine: How Uber Eats Is Turning Into A Billion-Dollar Business To Rival Grubhub [Forbes]
Sum and Substance: When early investors were pitched on Uber’s original plan for a car-service app in 2008, it wasn’t until the second-to-last slide that they heard delivery could be another moneymaker for the business. Ten years later, delivery is no longer an afterthought.
According to projections from its CEO, Dara Khosrowshahi, Uber Eats is on track to deliver some $10 billion worth of food worldwide this year, up from an estimated $6 billion-plus last year. Uber takes a 30% cut and a delivery fee, then pays drivers, suggesting that Uber Eats could generate at least $1 billion in revenue this year, or an estimated 7% to 10% of the total. That means Uber Eats is already among the planet’s largest food-delivery services and ranks second in the U.S. behind rival Grubhub (likely $1 billion in 2018 revenue) and ahead of competition like Caviar, Postmates and DoorDash.
… Making money on delivery isn’t easy. Sure, Uber Eats gets a hefty chunk of a restaurant’s bill and charges a delivery fee, generally between $2 to $8. But Uber has to pay the driver to pick up and drop off the food, plus market the service. Uber’s share of the bill is lower, on average, than in the ride-hailing business. Restaurants are, at best, semi-willing partners that can ill afford a 30% blow to their bottom lines. And since Uber isn’t (yet) willing to have your meal share a ride with a paying customer, there are fewer network efficiencies to capitalize on.
Its largest competitor, publicly traded Grubhub, has proved you can make a profit in this business. That success has made it a formidable rival, and it’s not the only one: Just in the U.S., Uber competes against Square subsidiary Caviar, well-capitalized startups DoorDash and Postmates, and the potential giant in the wings, Amazon.
My Take: I’ve been looking for this article – an in depth analysis of Uber Eats. While the article provides ample evidence that Uber Eats is growing at an impressive pace, I couldn’t find any data that shows they’re making money on this business. Yes, there’s a revenue figure, which is good, and there are some numbers on gross margins, but no profitability data.
This much we do know – Uber takes 30% of gross billings, plus a fee on top of that. From that, they have to pay drivers, and drivers as we all know want to be paid more. Until I see data that shows profitability, I’m a skeptic about this business.
Webvan lost $700 million before they finally realized it just wasn’t a good business to be in. For all we know, Uber may have already lost more than that trying to convince investors that this is a growing business. Can’t wait for the IPO when we’ll really find out what this business is really like.
How Uber’s Trying to Clean Up Its Act En Route to an IPO [Washington Post]
Sum and Substance: In 2015, explaining why Uber Technologies Inc. was years away from a public offering, co-founder Travis Kalanick likened the company to an eighth grader too young to go to the high school prom. As if to prove the point, the ride-hailing giant was then besieged by a sex harassment scandal, a lawsuit alleging a brazen theft of self-driving trade secrets and accusations of malfeasance that spawned multiple criminal investigations.
Since Dara Khosrowshahi took over from Kalanick as CEO, Uber has labored to clean up its act, making an IPO likely this year.
1. What explains Uber’s troubles?
Much of the blame has been directed at Kalanick, whose view of the law as something to be tested is well-chronicled. …
2. Which problems has Uber managed to resolve?
It settled the trade-secrets case brought by Waymo, a unit of Google parent Alphabet Inc., in the middle of a jury trial last year for a fraction of the damages being sought. More recently, in a veritable peace-making bonanza, Uber resolved claims by all 50 states that it concealed a massive data breach; persuaded a British judge to undo a ban on its operations in London; and doled out $10 million to more than 400 of its female and minority engineers to make a lawsuit over pay discrimination and sex harassment go away. It also agreed to pay an as-yet-undisclosed amount to end a class action accusing it of putting thousands of women at risk of sexual assault by Uber drivers.
3. How is Uber steering clear of new troubles?
Khosrowshahi vowed to be the opposite of Kalanick on compliance issues. The new CEO hired a former high-ranking Justice Department official as his chief legal officer and tweeted about directing his staff to stop using encrypted and ephemeral communication methods. Several executives linked to shenanigans left while Kalanick was still in charge, and more departed after his successor took over. …
My Take: This is a similar story to one I wrote a while back about how Uber is preparing for its IPO. The question for this blog is how all this will affect drivers. The answer is simple – public investors won’t be as patient as private investors, because at any time they can easily dump their shares on public markets.
Public investors are less forgiving, and more alert. The company will be under closer financial scrutiny. Bonuses will be lower. The company will try to find ways to take a greater share of the passenger share, without the driver realizing it. This is what Uber will have to do when they have to answer to public investors.
Uber Is Under Siege All Over the World [National Review]
Sum and Substance: I arrived at the airport here on Saturday to find the taxi-pickup lines empty and the lines for tickets at the airport’s Metro station overflowing. Madrid’s 20,000 taxi drivers have been on strike for two weeks to protest the existence of Uber and its imitators. Riot police have been used as strikers have lit bonfires and blocked traffic.
The cabbies hope to emulate the success of their counterparts in Barcelona, who last week won passage of new regulations that require app-based rides to be hired up to one hour in advance. Uber and its competitor Cabify have pulled out of Barcelona, putting 3,500 jobs at risk…
Uber is under pressure all over the world. After taxi drivers violently attacked Uber drivers in Istanbul, Turkey’s authoritarian president Recep Tayyip Erdogan moved to ban Uber last June. “That business is now over. There is no such thing anymore,” he said. In Hong Kong last month, cabbies vented their anger at online ride-hailing services by smashing two taxis with hammers. Hungary and Denmark have both banned Uber.
Even in the U.S., Uber faces punishing government surcharges in New York City, and a ban in Oregon cities other than Portland…
My Take: It’s somewhat surprising to see the conservatives at National Review taking on Uber like this. This article details Uber’s troubles and the headline suggests that Uber’s future is uncertain in many places. It’s worth noting that Uber has been under siege in many places for many years, and they are still primed for an IPO that will make a lot of people very rich. So take articles like this with a grain of salt.
Sure, Uber’s got troubles. So does almost every other business. That said, I still feel Uber is grossly overvalued at $120 billion, or $80 billion or even $70 billion. Won’t be long now until I find out whether I’m right.
Here’s the Uber Investor Letter That Forced Travis Kalanick Out [Yahoo Finance]
Sum and Substance: (Bloomberg) — On June 20, 2017, two venture capitalists arrived at the Ritz-Carlton hotel in Chicago to hand-deliver a letter to Travis Kalanick. The memo helped convince the Uber Technologies Inc. co-founder to step down as chief executive officer.
The document was among a series of files that were unsealed Monday as part of a lawsuit over autonomous-vehicle trade secrets brought by Alphabet Inc.’s Waymo. Although the companies settled the case a year ago, a judge ruled that some of the evidence shouldn’t be kept from the public.
Below is a full reproduction of the letter, which references corporate scandals and concerns about the lack of a qualified chief financial officer. Kalanick’s replacement, Dara Khosrowshahi, worked to rectify those in his first year on the job. He appointed a former Merrill Lynch executive, Nelson Chai, as chief financial officer to help prepare Uber for an initial public offering planned for this year…
My Take: I had long wondered what was in this letter. Was there something so scandalous that Travis Kalanick couldn’t bear to let it become known? Was there some overwhelming show of force or leverage that TK knew he couldn’t win? Or was it just a cogently worded letter that laid out the facts and the context in a way that TK could no longer avoid facing the truth?
Which of these was it? I don’t want to spoil it all for you, before you read the letter. Then tell us what you think it was.
Readers, what do you think of this week’s round up?
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-John @ RSG
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