Some Internet companies are named like SUVs: the bigger the better. Actual SUVs include the Armada, the Avalanche, and the Sequoia (What happened to the Brobdingnagian?); Internet companies are called Amazon, Monster, and Uber. Uber is German for “above” or “over,” as in “Deutschland Uber Alles” or “Germany Above All.”
Uber defines itself as an “all-in-one transportation system” that includes Rides, Uber Eats, Uber Freight, and Bikes. That’s a big agenda with formidable competition in every sector and substantial companies that have invested in or outright own many competitors — with an eye toward expanding the business or defending against the threat of Uber.
That threat — and the reason that Uber is valued at $54 billion — is the idea that Uber will one day control the world’s transportation systems. If you want to ship freight, food, or yourself anywhere, you’ll say to your wearable tech, “Uber it!” and the robots that have replaced Uber’s expensive drivers will move you or your stuff around. Like the founders of the transcontinental railroad, the owners of Uber will go from desperate money-losers to the richest people in the world.
But what exactly is Uber building? In September, Larry Ellison, the founder of Oracle and worth about $68 billion himself, said Uber has “an app my cat could have written” and is “almost worthless.” Unlike Amazon, which has built a complex, gargantuan infrastructure, Uber rides on the “sharing” economy. It sounds appealing, doesn’t it? Uber is “sharing” your car: you keep all the costs, and Uber gets all the market cap.
Uber doesn’t want drivers: in May, the National Labor Relations Board declared Uber drivers “contractors” because they set their own hours, own their cars, and are free to work for the company’s competitors. Employees are expensive: they require payroll taxes, minimum wages, overtime, and retirement. Employees who drive for a living usually require the company to buy the cars, too. Uber has a sweet deal.
If you talk to Uber drivers, they don’t want to work for Uber either. The best Uber drivers look for customers who cannot drive themselves (they have DUI convictions), go to the airport a lot, or prefer to work instead of drive. For the most profitable customers, Uber drivers often offer their personal cards and say, “Call me directly, and I’ll give you a better deal.” The competition is not Lyft; it’s Uber’s own drivers.
You can’t blame the drivers. They must know that Uber will replace them as soon as it can with self-driving cars, which, according to Elon Musk, CEO of Tesla, would be here in 2017. Bloomberg Businessweek’s October 14 cover story notes, “Tesla’s Autopilot could save millions of lives. How many people will it kill first?” If you believe, as some do, that true self-driving cars without pedals and steering wheels could be a decade away, Uber will be running on fumes for a long time.
On the other hand, if self-driving cars appear tomorrow, will Tesla, Ford, and GM turn over the transportation market to Uber? Could they hire their own cats to make a ride-booking app?
Ford bought dockless electric scooter company Spin for $100 million in November, 2018. Ford, a company with $160 billion in sales and after-tax income of $3.7 billion, is probably less interested in the phenomenal growth of scooters than in building a business model and data infrastructure for a distributed, shared transportation system.
Ford gets little respect today: Uber (UBER) has a market cap of $54 billion, Tesla (TSLA) is worth $46 billion, and profitable car-and-truck maker Ford (F) is valued at only $37 billion. The upcoming movie, “Ford Vs. Ferrari,” tells the true story of the time Ford entered the racing business. After two disappointing years of losing to Ferrari (spoiler alert) Ford in 1966 took first, second, and third place in the 24 Hours of Le Mans. Could it be that, in the race for self-driving cars, Ford could once again flex its muscle?
General Motors (GM) is no slouch either. GM earned $8 billion on 2018 sales of $147 billion; the company is valued at $51 billion — $3 billion less than UBER. GM invested $500 million in Uber-competitor Lyft (LYFT) and bought Cruise Automation, its self-driving car unit, for $1 billion. Is GM going to turn over its business to Uber? “Oh well. We only make millions of cars, and you have a pretty cool app.” It would be like AOL taking over Time-Warner, and we know how that ended.
Google’s Waymo unit has sued Uber for theft of self-driving technology. Apple also has a self-driving car program. Apple CEO Tim Cook noted, “We sort of see it as the mother of all AI projects. It’s probably one of the most difficult AI projects actually to work on.”
Let’s take a look at Uber’s numbers. Uber says it handles about 17 million rides a day, so you might think that the company is incredibly profitable. If you can’t make money on 17 million transactions a day, what will it take? For the last three years Uber has had operating losses of $3 billion, $4 billion, and $3 billion. For the first quarter of 2019 the operating loss was $1 billion; the second quarter loss was $5.5 billion. Uber claimed a profit in the year before it went public by producing an additional $4.9 billion in “Other Income” related to gains from merging its businesses in Russia and southeast Asia with local competitors.
Uber seems to be one of those companies that was built on the idea that, if you throw enough money at an idea, it’s bound to make it. There is some truth to that, but only if you’re building something that is absolutely defensible. For example, if you tour the Amazon warehouse in Robbinsville, you’ll be awed by the 1.2-million-square-foot facility with perhaps 100 trucks lined up and 14 miles of conveyer belts running faster than any conveyer belts you’ve ever seen while pistons blast packages down the truck chutes. When you see the level of investment and realize that Amazon has 75 of these megawarehouses across the country, you have to wonder, “What are we going to do with all the malls?” For the foreseeable future, virtually no one can duplicate Amazon.
Uber has a fine app, but it’s not impossible to duplicate, and there are plenty of companies with massive resources that are gearing up for the driverless transportation bonanza. Further, Uber doesn’t seem to have any pricing power: it has not turned an operating profit. We haven’t even touched on all the social issues piling up at Uber — cities that don’t want Uber drivers jamming their streets, taxis that don’t want the competition, and “bad apple” drivers that you’re bound to get when you operate 17 million rides a day. These are mere distractions compared to Uber’s core strategic problem, and the fact that it burns a billion dollars every quarter.
Not everyone believes in bank-rolling public companies that burn cash. Charles Schwab, founder of the company bearing his name, recently said, “I would never buy a company that has huge losses and no sight ahead of you [about] how you are going to make money. You want to buy companies that have great values. That means, No. 1, they have to be growing in revenue and they have to be making money.”
Uber reminds me of two other tech companies that were flashy but indefensible: FitBit (FIT) and GoPro (GPRO). In five years FitBit has gone from $47 to $4, and GoPro has gone from $79 to $4. If you think UBER is not worth $54 billion, consider the January 2021 Puts. That will give you some time for a disaster to unfold, and could be a helpful hedge if this nervous market takes a dive.
What could go right for Uber? The easiest challenge and probably most profitable business for self-driving vehicles is long-haul trucking. Highways are uncomplicated compared to city driving, and machines can drive all day and night. There were once two money-losing satellite radio companies: XM and Sirius, which are now Sirius XM. Uber could merge its ride and other businesses with Lyft and focus on freight. That might give Uber a chance to create a business that is more like the first transcontinental railroad and make its shareholders rather wealthy.
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