What’s the outlook for Uber?
Uber’s road to profitability has been a rocky one. Despite accumulating sales of $7.5 billion in 2017, it posted losses of $4.5 billion – and it has been hampered by setbacks such as the fatal collision of one of its driverless cars, and ongoing negative media attention on its company culture. It is also seeing increased competition from rivals such as Lyft, although the CEO seems confident that there is space for both in the marketplace.
However, many signs are pointing to the increasing success of Uber – not least it’s sky-high valuation. It turned its first profit in the first quarter of 2018, and the popularity of its ride-hailing app is continuing to grow. The new CEO is working hard to reinvent the brand’s image, and if investors trust the business model and see potential in the growth of the business, they are likely to take the risk of buying into the IPO. A lot of Uber’s future success depends on its ability to expand its offering – using its smart technology to further its transport offering and food delivery service and scale the business internationally.
What is Uber’s business model?
Uber’s business model is based on the aggregator approach, where passengers are connected to taxi cabs through an app. A passenger opens the app, enters their destination, and sees the approximate fare for their trip. If they agree to the price, the cab nearest to them will then be alerted to the passenger’s location and pick up the ‘call’. The cabs belong to the drivers contracted to Uber – not Uber itself – and the driver gets a portion of the fare. The strength of this business model lies in its innovative systems and infrastructure, and the demand for the service has proven that consumers believe in the brand.
How has Uber been performing?
Uber is considered something of corporate anomaly, having grown so fast yet lost so much money in a relatively short period of time. It has raised billions in capital and grown the business at an exponential rate since its launch in 2009. Although it is not yet a public company, it has recently started disclosing its earnings to reporters.
In 2017, Uber ran a loss in all four quarters: a $0.8 billion loss in Q1, a $1.1 billion loss in Q2, a $1.5 billion loss in Q3 and a $1.1 billion loss in Q4. In the first quarter of 2018, Uber finally turned a profit of $2.5 billion – thanks to deals made in southeast Asia and Russia – however, Q2 revealed another loss of $0.9 billion. Its CEO has said that Uber is willing to take these short-term losses because of the long-term growth potential.
Uber vs Lyft
Uber and its rival, Lyft, are both set to release their IPOs in 2019 – and may be racing to do so – but Lyft could beat Uber to market, as it is said to be planning its IPO for as early as March 2019. Dara Khosrowshahi said that he is not concerned about Lyft planning its IPO, as he believes there is enough public demand for both companies.
While there are many similarities between Uber and Lyft, Uber remains the bigger business – with a presence in more than 70 countries. Both ride-hailing companies compete heavily on pricing. They charge similarly per ride, often run the same promotions, and use price surging when demand increases. The apps also function similarly, and some riders normally just choose the service that’s closest to them (also keeping in mind that Lyft operates in fewer countries). Besides having the most coverage, Uber also has more ride options, from luxury vehicles to Uber vans. Lastly, Lyft has been valued at $18 billion to $30 billion, while Uber has a much larger expected market cap of $120 billion.