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Home / Business / Uber's terrible losses make his high stock valuation a fantasy

Uber's terrible losses make his high stock valuation a fantasy



Passengers love Uber's calculated fares. Why would not they? Uber loses money on almost every trip. If you sit on the back of a Uber car, you can rejoice that the business concept of the company was aimed at taking money from the rich – the private investors who supported the amazing growth of the passenger service – the Unrich This would be you and me and anyone else who thinks the cost of regular licensed taxis is exaggerated.

Uber Technologies Inc. must stop subsidizing tariffs if it ever makes a profit and continues to attract investors. But judging from the company's IPO issued last week, that day is not coming anytime soon ̵

1; and may never come. Even Uber admits that its operating costs will "increase significantly in the foreseeable future, and we may not achieve profitability."

If you look at Uber's deep losses in the past, present and future, you must ask yourself if the company's expected equity value is wildly exaggerated. While the prospectus did not include IPO pricing, it is expected that the company will generally raise $ 10 billion next month, which is worth about $ 100 billion. In this assessment, Uber would be more than five times as expensive as Lyft, its nearest rival, which began trading on Nasdaq on March 29 (and has since drifted south, but that's another story).

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Nevertheless, Uber's IPO will attract a wealth of technology lovers who are fascinated by its growth story. In her opinion, Uber is the next Amazon of transport variety. You will be patient as Uber invests much more billions in growth, to the point where Uber will have market share wherever it operates. If the competition is packaged, it can increase prices and profits will affect.

It's a beautiful fantasy that will forever remain a fantasy. In no case will Uber's new generation of competitors (including Lyft) take full control of the cities. There are also no municipal governments. In some cities Uber is prohibited or restricted. (In Rome, where I live, only the most expensive Uber services are available – over Black, Lux and Van – those who do not compete with regular taxis and charge about twice as much as they do.)

And if anything, these Cities develop their own apps that hail from passengers, Uber would be in trouble.

Uber's ability to bring cheap fares to market has made him one of the most prolific money losers in tech history when he tried to place regular taxis. traditionally operated under the licensed medallion system, diverting as many commuters as possible from public transport. Uber's operating losses in 2018 were $ 3 billion, bringing total operating losses to $ 10 billion over three years. The net income of $ 997 million in 2018 was largely the result of asset sales in Russia and Southeast Asia and gains from its investment in China's largest rally company Didi Chuxing.

Uber's new public investors are unlikely to do so Let the horrible loss figures put you off. Instead, they are blinded by growth, and Uber is indeed a phenomenal growth story. Since 2016, revenue has increased from $ 3.8 billion to $ 11.3 billion.

But if you dive into the lower regions of the 185-page prospectus, you'll find an ominous indication that Uber's growth is still slowing down. Evidence of this is what the company calls "core platform-adjusted net sales." An important measure defines fares without incentives for the driver, driver recommendations and some other expenses associated with the home business. Between 2016 and 2017, this turnover more than doubled. In 2018, however, the increase compared to the previous year was only 39 percent. In the fourth quarter of 2018, the number even dropped slightly in the third quarter to 2.54 billion US dollars.

Uber faces a dilemma. If tariffs are raised to reduce losses, the market will default as the competition heats up. But in order to gain market share, it has to suffer heavy losses by keeping tariffs low or even lower, and motorists cut far more prices to reduce their horrific rate of wear (most Uber riders do not last a year). How long can it afford to sustain these losses? Another way to ask this question is: how many billions are investors willing to pump into the company?

Competition is a serious threat. The others are governments, many of which have no love for Uber.

Governments do not like the company because its business model is based on destroying the taxi monopoly monopoly that allows them to regulate the market. The tens of thousands of Uber drivers in large cities increase the traffic load. Governments generally believe that Uber drivers, who are technically freelancers, are not underpaid and have no significant benefits, such as pensions and health insurance. In some countries, Uber faces legal challenges because of the status of its drivers. If the courts find that they are real employees, Uber would face an existential threat. The company essentially conceded that Uber can only be profitable in its prospect

if it manages to restore the monopolies, the licensed taxi services, that it seeks to destroy. But the bigger Uber gets, the more incentives governments will have to make with costly regulations. It was a great idea to offer cheap fares to the masses until it worked so well that Uber lost billions. Now that governments and competitors like Lyft Uber are targeted, it's hard to say that the company's equity value is $ 100 billion. Or somewhere near.


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