Why Uber Is Continuing To Hemorrhage Cash

Illustration for article titled Why Uber Is Continuing To Hemorrhage Cash

Uber is continuing to bleed money, even as it shut down its operations in China, according to news reports. The company has reportedly lost more than $2 billion this year alone, and it’s in part because an Uber ride is really quite a bit more expensive than what you actually pay for.


Bloomberg, citing a person familiar with the company’s finances, reported the company has lost more than $2.2 billion in the first nine months of 2016. Over the same period, the ride-sharing company generated an about $3.76 billion in net revenue—the amount it generates after paying drivers.

So what’s the deal? Uber shells out significant subsidies for drivers, so much so, a company exec said earlier this year it comprises the majority of Uber’s losses, according to Bloomberg, which might strike some as strange, given drivers have protested for higher wages.

The company’s financial outlook was highlighted in a lengthy series this month by transportation industry expert Hubert Horan on the finance blog Naked Capitalism. In a nutshell, Horan illustrated how an Uber ride costs far more than we may be led to think. The reason: It’s dependent on the $13 billion in capital raised by investors.

“Uber passengers were paying only 41 percent of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100 percent of their costs out of passenger fares,” Horan says.

The Bloomberg report noted that gross bookings—the total of fares charged before drivers get paid—jumped from $3.8 billion in the first quarter of 2016 to $5.4 billion in the third quarter. But the company’s reliance on subsidizing its drivers may prove fateful, especially if self-driving programs in Pittsburgh and San Francisco don’t lead to long-term changes in the Uber business model.


And as we noted last week, the partially-self-driving program in San Francisco didn’t get off to a hot start. The company is refusing to pay a $150 fee for a state permit to drive autonomous vehicles on California roads, and the state ordered the company to shutdown the service on its first day. This came after a video emerged showing one of Uber’s converted Volvo XC90s running a red light. (The company later said the vehicle wasn’t part of the program and blamed the driver.)


How does Uber achieve profitability? Horan doesn’t seem to think it’s possible.

“There have been hundreds of articles claiming that Uber has produced wonderful benefits, but none of these benefits increase consumer welfare because they depended on billions in subsidies,” he wrote. “Uber is currently a staggeringly unprofitable company.”

Senior Reporter, Jalopnik/Special Projects Desk


It never turns a profit, but it operates in so many places and provides its services to so many wealthy middle class folks that it gets granted “too big to fail” status and is handed millions in bail outs and subsidies until it is only a private company in theory but has been government operated in all but name. Because nobody will have the balls to out and out admit it has became government operated and funded and is still technically a private company, its executives and shareholders will still receive yearly profits.

An efficient way of transferring taxpayer money directly into wealthy private pockets. That is Uber’s endgame.