Why is Uber Hemorrhaging Cash ?

When we think of San Francisco based ride sharing service we usually think they must be doing pretty well. Lets face it they are the only real player in the ride sharing game other than Lyft which they usually hold a slight edge over. That being said, this last week Bloomberg said that it reports that Uber lost an estimated 1.25 billion dollars in teh first half of this year. So if it wasn’t panic time before for the company it is now. This is pretty unprecedented even for a tech company which is saying something. To put this into perspective, consider that Amazon reported a loss of 1.4 billion back in 2000 during the biggest loss of a tech company ever amid a crash across the whole sector. So what gives ?

Uber is driven by a kind of long game that says the rules are grow now profit later, but given these numbers its pretty staggering and they may need to go back to the drawing boards for this one. The Silicon Valley knows this formula all to well. The biggest company cost to the company is the fee it pays out to drivers. According to the Bloomberg report drivers subsidies account for a majority of losses in the first half of 2016. The memory demands are going to skyrocket. 

That’s the same fact shown in leaked documents published by the information earlier this year. The leaked documents showed that Uber was basically paying out 2.7 billion to drivers in the first half of 2015 . In comparison Uber lost about 72 million to promotions and prices cuts during the same period.

Uber has been desperately and quietly trying to mitigate their losses in the public eye and in relation to their drivers. What this kind of reveals is the fact that Uber is not really a viable company if it continues to have employees. That is a kind of puzzling and odd reality but it is the driving force for why they are going so head on forward with Ford in the creation of an autonomous fleet of vehicles that is going to fundamentally alter transportation forever, that is of coarse if they remain solvent until the release day.

What this is showing is that eventually Uber will get rid of the drivers and turn a huge profit. Just this month Uber made an announcement that it would begin to allow customers in downtown Pittsburgh Pennsylvania to summon a self driving car from their phone using the standard app of Uber no additional bells or whistles or costs being tacked on so this is a big moment for them. “It;s the case of business 101. You raise money, you invest money, you grow money (hopefully) you make a profit and that generates a return for investors.”

The big thing is that this is a huge loss no doubt, but what is surprising is that they kind of know it comes with the territory of their current business model. This could spell trouble if they can’t right the ship soon. But for now everything seems pretty groovy.

 

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