Back in September 2018, top executives from Uber (NYSE: UBER) were gathering in Manhattan boardrooms with some of Wall Street’s biggest banks, including Morgan Stanley and Goldman Sachs.
Both banks came in at roughly the same valuation figure: $120 billion.
When Uber IPO’d nine months later in May 2019, this figure had almost halved, and the company’s stock price has fallen from $45 to less than $30.
However, the company’s culture and running itself is not the main problem — despite its poor treatment of employees, high violence rates, and the fact it can’t keep its biggest operating licenses. Uber’s biggest problem is the flawed nature of the ride-sharing model itself.
Is ride-sharing doomed?
Uber’s chief rival, Lyft (NASDAQ: LYFT) is also feeling the pressure of running an unprofitable business. In its most recent earnings, Lyft reported a loss of just under $500 million, twice as much as a year before. The losses are growing, but Uber might be in an even worse boat.
Back in August, Uber reported a loss of $5.2 billion in its first-ever quarterly report as a public company, followed by losses of $1.16 billion in the following quarter. That is a staggering amount of money for any company. It seems like Uber and Lyft are stuck in a very costly race to zero as they seek to outprice each other at every turn, with rider discounts and driver incentives, in order to grasp some semblance of revenue.
Uber CEO Dara Khosrowshahi is chalking these losses up to 2019 being a “peak investment year,” thanks to the IPO. But how long can a company survive with a cash burn like this? The short answer is that it can’t for very long — at least not without drastic change.
Uber and Lyft’s model may not be making a profit, but a European counterpart certainly is. Estonian ride-hailing firm Bolt is starting to break even in a majority of the countries it operates in, according to CEO Markus Villig.
Founded in 2013 as Taxify and rebranded this year as Bolt, the start-up has built a solid base of 25 million customers and 500,000 drivers in 35 countries across Europe and Africa. With Uber recently losing its license to operate in London — its largest European market — Bolt looks set to take advantage of the space left behind. Villig says the firm has seen a lot of traction there with 1.5 million passengers and 30,000 drivers signed up to the platform.
There are still problems at Bolt — the group lost €61 million ($67 million) on total revenues of about €80 million ($88.6 million) in fiscal 2018 — but Villig has managed to offer lower prices and take less commission from drivers in what he calls the “most cost-efficient ride-hailing company in the world.”
We shall see.
Autonomous cars could be the key
Diversifying into new avenues such as food delivery with UberEats have proven unfruitful for the company, despite some success in the area. With this in mind, it would be best for Uber to focus on their core product and see how it can change it, which is where autonomous cars come in.
The Holy Grail for ride-sharing companies is an autonomous vehicle. In theory, it costs approximately $2 per mile to put a human driver behind the wheel of a car service car, compared to approximately 30 cents per mile to have an autonomous vehicle do the same job.
Uber already has a head start in this regard, as it has been working on automated driving with Google (NASDAQ: GOOGL) owned Waymo for several years now. The only issue with this is that it will need to either strike a deal with Waymo for use of its tech or develop its own software; neither of these options will come cheap.
If Uber can survive long enough to develop its own automated fleet of cars, it would surely become a market leader, as it was when it first disrupted the taxi market. Otherwise, a hail-mary option would be an attempted acquisition of Lyft in order to stop reducing its own prices.
Of course, with current antitrust regulations and the fact that Uber could hardly afford to purchase anyone right now, this seems next to impossible. But who knows? Stranger things have happened.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.