Uber Technologies Inc. is out to raise another billion dollars in financing, Bloomberg reported. The car-booking company’s CEO, Travis Kalanick, is reportedly trying to raise $1 billion from investment bankers to fund growth.
That would be in addition to the $1.2 billion Uber raised in June after it was valued at $17 billion. The question we need to ask is, why would Uber need this money? After all, it is expanding and growing fast and generating a lot of cash.
The most likely reason Uber needs the money is international expansion. Mr. Kalanick has probably concluded he cannot expand in the U.S. or possibly Europe. The company has already pulled out of at least one U.S. city, Eugene, Oregon, and it is facing stiff opposition in others, including Reno and Las Vegas, where the state has actually seized Uber drivers’ vehicles for violating the taxicab laws.
Uber also faces increased operating expenses in the form of mandatory insurance, required criminal background checks for drivers, and required inspections of its vehicles. Uber recently signed an agreement with the Taxicab Commission in Washington, D.C., agreeing to all those requirements to operate in the nation’s capital.
The service is also facing a lot of bad press because of attacks on passengers by crazed Uber drivers. Those attacks have led to lawsuits and news reports that scare potential passengers away.
Uber Gets into Politics
Then there are political realities, which have come home to Uber big time. In August the company named a veteran political operative, David Plouffe, who managed President Obama’s campaign in 2008, as its “vice president of policy and strategy.” I imagine that Mr. Plouffe’s services do not come cheap and that one of his major jobs will be to dispense cash to elected officials around the nation.
One major reason why Uber has hired Plouffe is to try to protect it from labor laws and lawsuits that could force it to classify its drivers as employees rather than independent contractors. That could cost the service a fortune and destroy the competitive advantage it has over the taxicab industry.
Uber’s other experiments are also potentially expensive. It is operating a moving service in Nashville and Atlanta and working with bicycle messengers in New York. These services threaten established industries and potentially politically connected companies and unions. That, too, will lead to expensive political and legal battles.
It looks as if Uber might not be the cash cow that some people think it is. Instead, it is a very expensive business built on a lot of debt that could implode quickly. My prediction for Uber is that it will borrow a fortune from investment bankers then, when that ATM starts running empty, it will issue an IPO and a lot of worthless stock.
Eventually the whole company will collapse when the debts come due, and the Uber dream will be over. By then, of course, the company will have wreaked a lot of havoc and created a lot of carnage in America’s cities.