What has been coined “Uber” meaning ‘ultimate,best’, has been rapidly revolutionizing the delivery of what we conventionally think of as taxi service. With its headline-hitting potential, Uber is once again in the spotlight. Fasten your seatbelt as we take you through Uber’s rocky news while you are grabbing an Uber ride.
An astronomical sum as such has been the talk of the town for Uber since Thursday. Reasons have pointed to the subsidies granted for Uber’s drivers contributing to a majority of the company’s losses globally. Uber reported losses of about $520 million before interest in the first quarter of this year. And now the head of finance, Gautam Gupta, announced another loss for the second quarter. The loss exceeded $750 million, and it mounted to at least $1.27 billion for the first half of 2016. This was despite bookings growing from above $3.8 billion to more than $5 billion from the first quarter of this year to the second. However, this might not come as a surprise since Uber has lost $4 billion in the history of the company over the past seven years.
The intense price war between Uber and Lyft this year is also another contributing factor for Uber’s enormous losses. In order to maintain its market share in the U.S., Uber is willing to spend. It is believed that Uber still claims around 85% of the market in the U.S. despite the emergence of Lyft in entering the once monopolized ride-sharing market.
The Real Reason Uber Abandoned China (25/08/2016)
Despite the red flags in their numbers, Uber losses might likely fall moving forward. In July, Uber has decided to opt out from the Chinese market as it has always been the biggest loss to the company despite billions of investments poured in by Uber and Chinese ride-hailing Didi Chuxing (a local ride-sharing provider). The price wars waged by rivals in China, India and the U.S. have put immense pressure on Uber. In order to make up for the cheap rides provided, Uber has to consistently subsidize its drivers to make up for the differences, and it came to light that the majority of the second quarter’s losses were subsidizing drivers in China.
However, after August, the $2 billion worth of losses incurred in China will not appear on Uber’s balance sheet again. Consequently, Didi gave Uber a 17.5% stake in its business in exchange for its retreat and Uber will receive $1 billion of cash from Didi. Investors might thus see a positive revenue growth very soon. Uber also announced that it was changing how UberPool’s contribution to revenue is being calculated for the second quarter, which had the effect of raising revenue.
The main challenge that Uber faces now is whether it is able to turn the corner to produce profit and a healthy cash-flow.