Hedge Fund Boss: Only way Uber could be Profitable is if it Cuts Driver Pay

Uber’s former Chief Financial Officer (CFO) admitted that the only way the networked transportation company could justify its $40 billion valuation is to cut driver pay by 10%. That’s the allegation that Michael Novogratz, the President & Director of the hedge fund The Fortress Investment Group, made on the TV show Wall Street Week.

Over the winter, Novogratz apparently asked somebody at Uber how the company could justify that $40 billion valuation that keeps getting thrown around. The answer Novogratz received is both disturbing and utterly disgusting. A person the hedge fund boss described simply as “Uber’s CFO” told him that Uber would raise the money by cutting the funds it pays out to drivers. Uber currently takes a 20% to 25% of a driver’s fare. The CFO said Uber could make more money by simply taking 5% to 10% more or raising the cut it takes to 25% to 30%.
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When Novogratz asked how Uber could justify such a despicable action, the answer he got was because we can. In other words, Uber thinks that it can do whatever it wants to its employees.

If it is true, Novogratz’s story indicates that Uber’s expenses could exceed its profits. Instead of raking in the cash, Uber might not be able to cover its expenses. Uber might not be making money. Unfortunately since it is private, we do not know.

Michael Novogratz US Army helicopter ace turned hedge fund guru.

Michael Novogratz US Army helicopter ace turned hedge fund guru.

This might explain why Uber is balking at paying modest fees to operate in some cities and refusing to pay to get background checks for its employees. It simply does not have the money to pay for those things.
Uber’s Valuation Jumped Because of Statement on TV?

What’s worse is that Uber is now too greedy for a hedge fund leader. Novogratz was completely disgusted by the Uber CFO’s actions.

Interestingly enough, Novogratz called Uber “a brilliant idea” and a “great company.” Yet his statements cast a lot of doubt on Uber when asked if Uber’s valuation went up $15 billion simply because its executives made statements upon the Charley Rose Show. Novogratz admitted “yes.”

It sounds as if Uber could be nothing but hype and hot air. If the only way Uber can make money is to give its drivers the shaft, it is obvious that Uber is not a brilliant idea or a good company.

Interestingly enough, Novogratz responded to Uber with his money. Business Insider reported that Fortress put its money into Lyft and not Uber. If Uber is such a brilliant idea and a great company, why is Novogratz not putting money into it?

Uber’s response to Novogratz’s statements was predictable. One of its spokesmen said the CFO’s statements did not reflect Uber’s values. I, for one, was not aware that Uber had values or for that matter, any value. So that statement, like Uber’s valuation, could be worthless.
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One interesting note here: the person who made the alleged statements to Novogratz has not been identified. Some media outlets have identified him but since Mr. Novogratz did not identify him, I won’t repeat it. Investors would be well-advised to follow Mr. Novogratz’s lead and stay far, far, away from Uber.