Uber’s Significant Losses Create Concern for Company Stability

By David Webster
Technology & Innovation Writer

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In the past two years, Uber has experienced an unprecedented amount of growth- at a cost. Since early 2015, the tech-giant has been expanding rapidly in all directions. While Uber’s gross bookings and revenue have skyrocketed, their expenses have followed suit.

The problem is that the latter is greatly outweighing the former.

Let’s start with the upside to Uber’s expansion. From a competitive standpoint, there is a silver lining for the San Francisco-based company. The total bookings shatter the numbers of Lyft, who is Uber’s primary rival. In the first half of 2016, the company grossed $3.63 Billion in total bookings; a substantial leap from the $2.93 Billion posted in the prior year. So, people are using the app. Unfortunately, in a truly flaunting fashion, it appears that the transportation startup may be flying too close to the sun.

Uber’s high revenue results from over-ambitious spending and costly promotions. In order to grow their revenue by such a large amount, the company utilized aggressive marketing tactics. Uber implemented dramatic discounts, rider incentives, and driver incentives to reach the top. On one hand, these strategies worked; they helped the tech-giant take control of the market. But these same strategies would also come back to bite them. In the end, Uber’s bottom line took a massive hit.

If we take a run through Uber’s expenses, we can see why their growth in revenue hasn’t translated to a growth in net income. Their expenditures are growing at dangerous rates; sales and marketing, the app’s largest expense, registered at $246 million in all of 2014.

This number jumped to $295 million in just the first half of 2015.

Other categories have dutifully followed this trend. Price cuts and promotions consumed $72 million of Uber’s revenue in the first half of 2015, up from 57.3 million in all of 2014.

In this same time, Research and Development grew from $65.9 million to $94.7 million.

Further expenses include operations and support ($159.1 million) and general administrative expenses ($177.7 million), which have both experienced similar spikes since the previous year.

Unfortunately, Uber has not been able to balance out these massive expenditures with equally massive returns. This huge jump in expenses has not only hurt the company’s bottom line, but has rendered it unprofitable. In all of 2014, the company reported total GAAP losses at $671.4 million. In the first half of 2015 alone, these losses sprung to $987.2 million. By the numbers, this trend is strongly unfavorable for the California startup. Such high losses would be a death-wish for most companies. But, somehow, Uber is remaining resilient.

Uber has cash–lots of it. The tech-giant has raised more than $9 billion in venture-based funding. Cash and cash equivalents came in at $4.15 billion in mid-2015. So, there could be a method to their madness. These fundraising sprees have fueled Uber’s reckless spending in the past, and may enable further spending in the future. As long as the money is available, one of the world’s most influential startups may stay on top.

 

A version of this article appeared in the Tuesday, September 13th print edition.

Contact David at
david.webster@student.shu.edu

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