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Why did Uber reveal its billions of losses?

Uber recently revealed its revenue and net losses for the year 2016. It was a bit of an unusual move because one of the great advantages of being a private company (not listed on a stock exchange) is keeping your financials away from prying eyes.

Some in the press have suggested Uber is trying to deflect attention away from its recent troubles including allegations of workplace harassment and its CEO being caught on video in a heated argument with an Uber driver. No matter the reason, the financial disclosures give a rare insight how this astonishingly disruptive company really operates.

How did Uber lose so much money?

Uber financial metrics

Uber is simply not charging customers enough for using Uber and sharing too much of the fare to Uber drivers. The company is effectively subsidising users of the Uber service so it can keep growing rapidly. In the last 3 months of 2016, Uber recorded a net revenue of US$2.9 billion, a very high 74% increase from the previous 3 months. Unfortunately, this came at a cost of a US$1 billion net loss.

Is Uber really worth US$69 billion?

Uber has reportedly raised money from investors at a US$69 billion valuation. Looking at the 2016 financial losses alone, Uber appears to be tremendously overvalued. It would have to increase prices by perhaps 15% or reduce the sharing of fares with Uber drivers to come close to making a profit. This is not easy to do since Uber faces stiff competition in many major markets.

What might justify Uber’s US$69 billion or even larger valuation? Imagine in 5 or 10 years’ time when your Uber car might well be self-driving. Uber would no longer have to share the fare with human drivers but instead may share a much smaller portion of the fare with autonomous car manufacturers. We wrote about this specifically in How You Can Profit from Mercedes and Uber’s Love Affair.

WHAT TO SAY…

Did you hear Uber loss nearly US$3 billion in 2016?

No wonder the taxi industry can’t compete with them. With so much financial firepower, Uber can just keep subsidising customers to get more market share. Maybe Uber customers will be in for a price rise at some stage because I can’t see Uber investors being happy losing so much money in the long term.

Unless, they take Uber drivers completely out of the equation with self-driving cars.

 

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About Kent Kwan

Kent Kwan is a Co-Founder of AtlasTrend, an online investment platform that makes it easy for anyone to learn and invest in trends transforming our world. Kent has over 15 years experience in financial markets including as Chief Investment Officer at Arowana International Limited, and roles at JP Morgan and Macquarie.