One of the largest companies now, Uber, is said to be getting worse at making money and the reports rightly claim so. After merger with China’s Didi Chuxing, the company has started focussing on other Asian markets like India and Singapore.
However, the focus remains the money Uber is bleeding right now. The company, valued at $66 Billion has lost a whopping $1.27 Billion in the first half of 2016 already, making stakeholders worry about the company’s valuation and performance.
What is even more surprising is that the company lost more in the second quarter of this year, as compared to the first quarter. Incidentally, Uber announced in Q1 2016 that it is profitable in the US and still has been losing a substantial amount of money in the country.
Bloomberg’s report states, “Subsidies for Uber’s drivers are responsible for the majority of the company’s losses globally, Finance head Gautam Gupta told investors, according to people familiar with the matter.” So it is at least not the free rides and the ride coupons given to users leading to higher losses.
Break-up of the operating losses in H1 2016
The report by Bloomberg also says, “In the first quarter of this year, Uber lost about $520 million before interest, taxes, depreciation and amortization, according to people familiar with the matter.”
The losses rose to $750 million in the second quarter, of which 15% came solely from the US. There aren’t a lot of companies that are valued very high and bleed this much capital. This is definitely alarming and scary at the same time, considering the dot com bubble has been expected to come soon.
The bright side of this is that Uber continues to grow its business at a staggering pace, by launching uberPOOL in the US and India and pumping money into growing markets to set a strong foot in those lands. Unfortunately, the local businesses are making it tough for Uber but the company is doing everything to gain ridership.
Having said that, Uber’s primary aim seems to be to gain as much market share as possible and then increase monetization. However, in doing so the company makes higher losses instead of concentrating on getting profitable.
Is the bubble bursting?
On the face of it, it looks like the bubble is getting smaller, one leak at a time, but the inevitable is quite close. The companies are looking at capturing more users instead of making their business profitable. As long as VCs are funding, their operations are growing.
The day the funding gets over, they will get caught up in an irreversible problematic situation. However, considering Uber’s popularity and growth, the funding won’t get over anytime soon, unless the company makes a huge blunder.
While Uber seems safe, a lot of companies haven’t been able to make through the second year of business and have shut down to stop making further losses. Uber’s rivals, Lyft in the US, Ola in India and Grab in Singapore aren’t doing any better, so for investors it gets more difficult to assign their capital.
Uber is sharpening its focus in India as it opened new options of booking rides for family and friends, and booking an Uber without the need of the app. These are exclusive to India as it sees potential in the country, even though it has already faced a lot of hurdles from local taxi players and the Government.
Now with the merger in China, Uber’s balance sheet will show lower losses and relatively lower revenues, but at least the earnings will be more. Let us see how Uber fares in the second half of this year and how it upturns its growth.
Source: Bloomberg
