Is Uber the next Webvan? Will Uber go bankrupt?

uber rev graph

Uber logoThere was a report yesterday on the price wars between Uber USA LLC and Lyft, Inc.   According to Bloomberg, in a price war with rival Lyft, Uber reduced its rates by 10 – 45 percent in 100 cities across North America.  Can Uber continue to be darling that represents the cloud, mobile, social generation of unicorns?  Or is Uber representing the next crash?

During the dotcom bubble, Webvan Group, Inc. was the company that signified that collapse.  Will Uber be this generation’s Webvan?  Is Uber at risk of going out of business?

After reading the Bloomberg report, I see as some issues with Uber that got me thinking about their profit plans.

  1. The drivers aren’t making any money, even on a variable basis.  When you consider that they’re raking up almost 100,000 miles per year, and most of them just started a couple of months ago, so that the major costly repairs have yet to show up on their maintenance budgets — it’s going to be even worse for the drivers.

  2. Still, Uber is doing so poorly that it’s slashing rates.  Is that what a healthy $62 billion valuation company does?  Shouldn’t a company like that have pricing power?

  3. In 1Q of 2015, they lost $385 million on $287 million in revenue.

  4. In 3Q of 2015, they lost $697 million on $498 million in revenue.

  5. For the first nine months of 2015, they lost $1.7 billion on $1.2 billion in revenue.


Future Revenue Might Be Difficult

uber revenueClearly this company has no pricing power, and negative scale.  People say they’re in such good shape because they don’t own the cars and don’t employ the drivers.

  1. They’re not in good shape to begin with.  They might be driving right toward bankruptcy.

  2. They don’t own the cars, and the cars are being worn down with no profits to pay for their upkeep and replacement.

  3. They don’t employ the drivers, and the drivers are driving the cars at a loss, even on an incremental variable basis.

But they’ll make it up in volume!  Some day…

If this Unicorn goes down like an elephant facing a loaded machine gun of financial realities, it will be epic.

I hope that I’m wrong.

Feature image via Bloomberg