Fans of Uber’s hail-a-ride app praise Uber for filling a void in urban, on-demand transportation. But as the company deals with the fallout from the ouster of CEO Travis Kalanick and ongoing questions about its leadership and direction, one of the biggest questions facing investors and the company itself is this: Can Uber turn a profit?
The company is worth somewhere between $28 billion and $62.5 billion, according to valuation experts cited by Bloomberg and others. But Uber’s survival depends on the company’s ability to turn a profit for its many investors, none of whom have yet seen a dime’s worth of return.
If Uber goes public, it will need a tremendous IPO to pay off current investors, which include Morgan Stanley, Goldman Sachs, tech giants Google and Apple (via ridesharing startup DiDi), and a host of mutual funds and private investors.
“Disruption is easy but making money off disruption is difficult, and ride-sharing companies would be Exhibit 1 to back up the proposition,” writes Aswath Damodaran, professor of finance at NYU’s Stern School of Business, in a recent blog. “While the ride-sharing option is here to stay and will continue to grow, ride sharing companies still have not figured out a way to convert ride sharing revenues in profits.”
Damodaran says Uber follows “a flawed business model,” burning through capital as ride prices continue to fall and competing services enter the marketplace.
In the meantime, lawsuits against Uber filed by city attorneys, charges of workplace sexism and other scandals have taken a toll on Uber’s reputation, triggering a consumer backlash embodied in the hashtag #deleteUber. The protest also stems from the company’s controversial “surge pricing,” or rate hikes based on a spike in demand for rides.
Political author and former New America thinktank fellow Steven Hill thinks he understands the core problems Uber faces for long-term viability. Hill is the author of Raw Deal: How the "Uber Economy" and Runaway Capitalism Are Screwing American Workers. In his view, the future of Uber may come down to the simple issue of turning a profit.
“Uber is the most valuable private company in the world,” Hill says. “But they’re not making a profit, so why haven’t they imploded yet? In some ways, they have. There are so many venture capital funders who don’t know whether to stay involved and give more money to turn it around -- or pull out.”
Hill points to statistics that show seven out of 10 Silicon Valley startups fail when their venture capitalists pull up stakes and move on.
“Uber is so much bigger,” he says. “The Saudi Arabia oil fund, Apple and Alphabet are all investors. It’s just not clear what Uber can ever do to become profitable if you look at their business model. Amazon was able to sell things without having a store. Traditional retailers have so much more overhead. That’s what allowed Amazon to compete. But Uber is basically a taxi company. They say they’re a technology company, but you still need a car. They transfer that risk to the driver; they haven’t fundamentally found any cost savings in that process. They haven’t set up a profitable model. They’re using venture capital funding to subsidize rides.”