The much awaited float of ride hailing pioneer Uber is nearly upon us although it seems as though the IPO price will be set towards the lower end of the $44 up to $50 range. If the rumours are confirmed, the IPO will be priced at $45 and value the company at around $82 billion. This is a huge IPO and one which many experts believe will test the market. However, how does the future look for Uber?
Uber has never made a profit
In this day and age it is no surprise to learn that Uber has never made a profit although revenues are growing and losses have been reduced. Revenues for 2018 came in at $11.3 billion which was up 43% increase from 2017. At the same time, the company reported a loss for 2018 of $1.8 billion although this is a slight improvement on the $2.2 billion loss in 2017. Since inception the company has raised more than $24 billion to cover development and ongoing losses.
Uber took a hit to its reputation
Unfortunately, the last couple of years have seen Uber making the wrong type of headlines in the mass media. Amid accusations of an inappropriate business culture and lawsuits over trade secrets we have seen some major management changes. The founder was effectively jettisoned from the company in 2017 and the board of directors are currently working to repair and rebuild the company’s reputation.
Strike action
Just hours before the US IPO we have seen a number of Uber drivers undertaking strike action across some of the major cities of the world. This is a company which operates in 63 countries and more than 700 cities and the strike action has come at a critical time. There is concern that the ongoing issue with Uber drivers will overshadow the IPO but time will tell. Even though there have been some improvements in Uber driver working conditions many believe they still have some way to go before this issue can be resolved.
Expanding services
While Uber is renowned for its ride hailing services the company is very keen to expand into other areas. It is difficult not to compare and contrast Uber with electronic car giant Tesla, both of them have experienced growing pains and a difficult relationship with the mass media. Indeed, in a very similar path to Tesla, Uber is already planning expansion into areas such as bike rental, scooter rental, food delivery and freight. Plans are already advanced to introduce air taxis and driverless car technology over the next few years.
Competition in the industry
While Uber is by far and away the best known ride hailing company in the world, US rival Lyft has instigated something of a price battle with Uber. This could be extremely damaging to both companies and effectively reduce short to medium term growth/profitability. While a race to the bottom would obviously suit consumers it would do nothing to shore up the balance sheets of these cash intensive loss-making operations.
Conclusion
Just because Uber is loss-making does not necessarily mean it will not move into profit in the short to medium term. Akin to companies such as Amazon and eBay, which were extremely investment intensive and reported losses for many years, there is still huge potential for Uber going forward. The expansion into what could be best described as “complementary services” could create some interesting long-term revenue streams.
The raising of a minimum $8 billion will obviously assist with Uber’s short to medium term cash flow requirements but at some point the company will need to become self-funding. A very interesting company!