Uber is groaning under the pains of operational cost, such that their cars keep accepting hailing requests but they are never really turning in profits for the company. A disclosure made in the SEC filing before Uber’s Initial Public Offering due in May shows that the ridesharing company is expressing fears that it expects operating expenses to “increase significantly in the foreseeable future” and that “may not achieve profitability.” In 2018 alone, Uber lost $3.03 billion from operations, even with its 91 million monthly active users. Here are a few things we learned from Uber’s filing with America’s Securities and Exchange Commission for its Initial Public Offering, which would take place later in May.
Every Country Seems to Be Finding Saudi Arabia’s Cash Irresistible
Saudi Arabia’s Public Investment Fund owns 5.2% of the Uber’s stocks. The Investment Fund also owns shares in Softbank’s Vision Fund, which owns 16% of Uber.
Losses, Losses and More Losses
In its filing, Uber said it turned in a profit of $997 million in 2018, largely from divesting parts of its business in places like Southeast Asia and Russia. Excluding those gains, among other items, Uber lost $1.8 billion for the year. In 2017 alone, it netted a loss totalling $4 billion. 2018 saw its revenue rise 42 percent to $11.3 billion from a year earlier. But revenue in 2017 had more than doubled from 2016.
Uber Looks For the Most Profitable Routes to Stay In Business
Uber revealed in the prospectus that it is heavily dependent on just five cities for nearly a quarter of its total bookings: Los Angeles, New York, San Francisco, London and São Paulo, Brazil.
Its number of monthly users, who turn to Uber for not only rides but also services like food delivery, was 91 million in 2018, up 34 percent from a year earlier. But user growth, which had risen 51 percent in 2017, also slowed.
Uber Drivers May Soon Become Employees of the Company
The company said in its prospectus that the possibility it may someday be forced to recognize its drivers as employees was an existential threat to its business. “Any such reclassification would require us to fundamentally change our business model,” Uber said.
Uber Drivers May Soon Be Entitled To Stock Options
The company said in its filing that it intended to award cash bonuses to more than 1.1 million drivers in the United States. The bonuses range from as little as $100 up to $10,000, based on how many trips the driver has completed. Drivers will be able to use the bonuses to purchase Uber stock at its I.P.O. price.
The Biggest Winners From Uber’s Public Offering Will Be Its Founders And Early Investors, Who Own Large Parts Of Company Stock.
According to the prospectus, the biggest shareholders are SoftBank, which owns 16 percent of Uber; the venture capital firm Benchmark, which owns 11 percent; Saudi Arabia’s Public Investment Fund, which owns 5 percent; Alphabet, which owns 5 percent; and Mr. Kalanick, who owns 9 percent.
Companies That Discount More Win?
Uber is currently being faced with stiff and aggressive discounting competition from rivals, such as Taxify, Lyft, Ola, Careem, Didi, Taxify and Yandex.Taxi, and of course, the public transport system which have dragged down its plans to attract and retain riders. The revenue made by the Estonia-headquatered Taxify (Bolt) alone in 2017 increased six times compared to 2016, totalling €18 million, although the company still reported a net loss of €11 million. In fact, the sum total of the rides made by Taxify in 2018 is an estimated €1 billion euros, both as a result of geographic expansion as well as technological developments, compared to Uber’s 2018 $11.3 billion revenue, which was up around 42 percent over 2017, but below the 106 percent growth the prior year, even though it has more riders than Taxify.
IPO is a Means to an End, Not the End Itself
Uber’s listing on the Stock Exchange appears a clever way of continuing with the neck-to-neck competition in the ride-sharing industry. A smaller Lyft, with merely a self-acclaimed 39% market share just got itself listed recently. Expectations soared and the stock price rose in excitement, reaching a staggering $72 before falling, 15% down to $61 per share, barely a month after the first public offering. Indeed, fear is high with the threat from self-driving vehicles, seen as potentially lowering costs but which could also disrupt its business model. Listing on the Stock Exchange is not a permanent healing for the decade old company as the real work begins after that. Uber is expected to begin a series of investor presentations, called a roadshow, which will start in the week of April 29, after making the public offering.
Uber Is Gearing to Be the Largest Initial Public Offering since Chinese’s E-Commerce Company Alibaba Group Holding Ltd
For the IPO, Uber plans to sell around $10 billion worth of stock at a valuation of between $90 billion and $100 billion. By doing so, Uber is gearing to be the largest initial public offering since Chinese’s e-commerce company Alibaba Group Holding Ltd first raised $25 billion in 2014 from similar offering.
Fighting with Customers is a Lose-Win Game
One advantage Uber appears to be banking on
would be the fact that it is still the largest player in many of the markets in
which it operates. However,
Uber’s CEO Khosrowshahi will be tasked with convincing investors that he has
successfully changed the culture and business practices after a series of
embarrassing scandals over the last two years.
Those have included sexual harassment allegations, a massive data breach that
was concealed from regulators, use of illicit software to evade authorities and
allegations of bribery overseas.
Another hurdle the company hopes to cross would be to finally confront the monster of a #DeleteUber campaign which surged on social media in 2017 after a public relations crisis, which Uber said in its filing meant hundreds of thousands of consumers stopped using its platform within days.
Uber said its market share fell in most regions last year, although the rate of decline has slowed.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.