Passenger fares only cover 41% of Uber’s expenses, an analysis prepared for Naked Capitalism by transportation expert Hubert Horan indicates. That means most of Uber’s money comes from investors; and from the actual service, if Horan is right.
Horan estimated that Uber is losing around $2 billion a year making it the most expensive startup in history. Horan based his analysis on private financial statements that Uber shared with investors.
Those statements indicate that Uber is a great deal for drivers who are getting around 83% of the revenue, and a very lousy deal for investors. Among other things Horan determined that Uber had a 143% negative profit margin the year that ended in September 41%.
The most interesting figure that Horan discovered is Uber passengers only cover 41% of the cost of their trips. That means Uber is a better deal for passengers than drivers or investors.
Transportation Expert Predicts How and Why Uber will Fail
“There is no evidence that Uber’s rapid growth is driving the rapid margin improvements achieved by other prominent tech startups as they “grew into profitability,” Naked Capitalism writer Yves Smith wrote after reading Horan’s analysis.
Unfortunately it is impossible to tell if any of Horan’s claims are true because Uber is a private company. That means it is under obligation to share its financial information with anybody who lacks a court order.
Is this Supermarket Uber’s Future?
Even self-driving cars might not help Uber because other better-financed companies; like Ford (NYSE: F) and Alphabet (NASDAQ: GOOG), are in a better position to take advantage of that paradigm shift. Over at CNBC’s Disruptor 50 David Spiegel made an interesting comparison of Uber and King Kullen.
King Kullen; for those not from Long Island, is a small regional supermarket chain based in Queens. The company’s founder Michael J. Cullen is widely credited with investing the modern supermarket back in 1930. Yet today, the chain does not even operate in every borough of New York City.
The problem was that larger competitors like Safeway and Kroger (NYSE: KR) were able to easily copy Cullen’s business model. They used their far greater resources to build massive national chains, while King Kullen remained small.
The same thing can happen to Uber if all the investment money runs out. That might explain the startup’s frantic efforts to adopt new business by Travis Kalanick, Uber’s CEO. He understands that his company has a very small window of opportunity that might already be closing.
This might also explain Uber’s aggressive tracking of every passenger. It is trying to gather as much data as possible and monetize it before the investors pull the plug on the money flow.
The Verge reported that Uber now has the ability to track users even when they are not taking a ride. One just hopes that Uber does not run out of money and start selling that data for fast cash. If Naked Capitalism is right it could happen at any moment.