The Uber problem

A giant loss raises questions about the entire ride-sharing model

New York Stock Exchange on Ubers opening.
(Image credit: Getty Images)

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Three months after its public debut, Uber posted a $5.2 billion loss that's "impressively vast" even for a company whose business model is based on outspending the competition, said The Economist. Much of this quarter's loss — $3.9 billion — is a one-time cost from stock-based compensation linked to Uber's IPO. Still, "from its inception Uber has now lost a cumulative $14 billion." All that money is being spent on "efforts at becoming the 'Amazon of transportation,'" but this is far more money than Amazon ever lost. Meanwhile, Uber's revenue growth has slowed to its lowest rate ever "as competition for passengers holds down fares." This is a company that "relies on rapid growth to keep investors happy." Now those investors have to decide "whether it's worth backing a firm splurging vast sums." Uber still has $13.7 billion on hand, said Tom McKay at Gizmodo, so it still has "about two years before it exhausts its current funding." But clearly the company can't keep burning money at its current rate. It's laid off 400 people from its marketing staff and put a hiring freeze on new engineers — not "a good sign for the future of an organization."

When Masayoshi Son, the CEO of tech investment giant ­SoftBank, "wrestled his way into Uber a little more than a year before the IPO," it was seen as a triumph, said Tim Culpan at Bloomberg. Now, however, the stock is down more than 20 percent since Uber's May 10 IPO, and the public markets have shown themselves less willing to "invest in big unprofitable businesses with the promise of future growth." That makes Uber "among the biggest weights around the neck of the ­SoftBank Vision Fund." SoftBank is even looking at investing in some of Uber's competitors, said Jesse Pound at CNBC. But Uber CEO Dara ­Khosrowshahi believes Uber and SoftBank are very much still on the same side. When Son "puts money into companies, it's because he believes in them and he thinks they're going to be category leaders," says Khosrowshahi. "We are their single largest investment."

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Uber has claimed that its biggest rival is car ownership, said ­Patrick Sisson at Curbed. "For roughly the last decade, Uber and Lyft and other technologies have been the focus of wild claims of growth and guarantees that they would revolutionize how we get around, reduce traffic, and cut emissions." Now many of those claims look suspect. Uber's and Lyft's own studies show that drivers cruising around the streets increase congestion. Uber was heavily subsidized by venture capital, cutting the cost of rides and turning them into "affordable luxuries." Its mounting losses, though, have exposed the problems with the model. "Not only is it difficult trying to disrupt the way Americans travel, it's also very, very expensive." Uber and its competitors face high costs to recruit drivers, while "passengers are very price-sensitive when booking rides." All this invites a question that's even bigger than Uber: Has the tech solution that so many investors bet on distracted us from better and cheaper ways of fixing our transportation infrastructure?

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