Uber Expected to End 2016 with $3 billion in Losses

Ride-hailing company’s loss exceeds $800 million in Q3 FY16

u1San Francisco-based Uber Technologies Inc., a popular ride-hailing service that connects passengers and drivers globally, is estimated to have piled on losses of over $800 million in Q3 FY16, excluding its Chinese operations, as reported by Bloomberg on December 20th, 2016. Uber generated about $1.7 billion in net revenue in Q3 FY16, up from $1.1 billion in Q2 FY16. In the first nine months of 2016, Uber reported losses of over $2.2 billion, while it generated about $3.76 billion in net revenue. For full year FY16, Uber is on track to exceed $5.5 billion in revenue. However, the company is expected to end FY16 with massive losses of about $3 billion, excluding interest, taxes or stock-based compensation.

Uber’s losses in Q1 FY16 were about $580 million, which rose significantly to $800 million, including China, in Q2 FY16. Even in the US, Uber’s posted losses of $100 million in Q2 FY16. The losses increased thereafter in Q3 FY16. Lyft, Uber’s largest U.S. competitor, is aiming to keep its losses below $150 million per quarter.

u2Even as Uber gears up for its IPO, the Company is stepping up operations in Asia, Europe, and Latin America to justify a valuation that’s already at $69 billion, the most for any venture-backed startup in the world, making it more valuable on paper than General Motors Company (NYSE: GM) and Twitter Inc. (NYSE: TWTR) combined.

Slowdown in booking growth

Uber’s bookings, the total combined value of the fares that riders pay, were $5.4 billion in Q3 FY16, an increase from $5 billion in Q2 FY16 and $3.8 billion in Q1 FY16. The slowdown in Uber’s bookings growth is partially attributed to the company’s decision to leave China. On August 01st, 2016, Uber came to an agreement with Didi Chuxing to exit China in exchange for 17.5% stake of the Chinese company. As part of the deal, Didi invested $1 billion in Uber.

Uber partners with Indonesian taxi operator Express

On December 18th, 2016, Reuters reported that Uber entered into a partnership with Indonesia’s second-biggest taxi operator, PT Express Transindo Utama Tbk, for ride-sharing and vehicle financing. The deal will give Uber, which currently operates in five Indonesian cities, some access to Express’s fleet of more than 11,000 taxis and 17,000 drivers. It will also help Uber meet regulations on getting a local partner.

Express drivers who participate in the new program can take orders on the UberX service to supplement their existing business. UberX is typically a low-cost option that allows up to four riders. Uber drivers can also lease vehicles with no taxi attributes or branding from Express by making monthly payments, partly through the income generated from using the Uber app.

Challenges to operations

u3Uber has faced regulatory obstacles in several of the 77 countries where it operates, with regard to vehicle safety tests and ensuring that their drivers are licensed, among other conditions. Uber has faced resistance from local taxis and has had several run-ins with local government over pricing and permits. The Company has also faced challenges to show regulators and policymakers the benefits of the use of technology for the riders, drivers and the cities at a time when increasing urbanization is pushing up demand for infrastructure and mobility requirements.

In its India operations, Uber has also faced roadblocks in terms of technical glitches in its app, low internet coverage in some parts of the country, and safety concerns for women travellers. To overcome these technical glitches, Uber is investing heavily to harness technology to broaden and customize its services by building its engineering and support teams across the world.

Uber exits China, sharpens India focus

Uber is looking to dominate the $10-billion Indian ride-hailing market by closing the gap with homegrown rival ANI Technologies Pvt. Ltd.’s Ola. As part of these plans, Uber is stepping up investments in India and aiming to recruit a million drivers by 2018. Uber, which entered the Indian market in 2013, has expanded to 28 cities in India and handled about 5.5 million rides per week in August 2016, more than thrice the amount at the start of 2016.

u4India has become Uber’s largest market after the U.S. after it agreed to sell its China business to Didi Chuxing. Uber is also looking to up the ante by diverting to India a significant portion of the $1 billion investment it had originally planned in China. It also plans to increase the size of the team at its Bengaluru engineering center. India accounts for 12% of all rides on Uber’s platform globally and remains a key focus area for the Company.

In June 2016, Saudi Arabia’s Public Investment Fund (PIF) invested $3.5 billion in Uber in return for approximately 5% stake. The PIF investment is expected to help Uber, which has been operating in Saudi Arabia since early 2014, to expand its global operations and gain a leg-up against rival Lyft.

Uber sees growth in delivery and self-driving vehicles

u5Retailing behemoth Wal-Mart Stores Inc. (NYSE: WMT) is looking to close the last-mile delivery gap with rival Amazon.com Inc. (NASDAQ: AMZN) by partnering with Uber and Lyft to launch a pilot grocery-delivery service. Wal-Mart started testing its grocery delivery service through Uber in Phoenix and Lyft in Denver late July 2016. Wal-Mart had earlier launched a similar pilot for Sam’s Club in March 2016 with Deliv to deliver general merchandise and groceries in Miami, Florida. With these measures, Wal-Mart is looking to ward off intense competition from Amazon, which has been expanding its grocery-delivery service, AmazonFresh, across major U.S. cities.

u6Swinging into another partnership, Uber announced on November 01st, 2016, that it has entered into an agreement with General Motors to help drivers get access to vehicles. The automaker’s Maven car-sharing service will let Uber drivers lease cars from GM’s fleet in San Francisco. GM’s Maven unit will test the program with Uber in San Francisco for 90 days, after which GM is interested in expanding the business with Uber.

GM, which introduced Maven in early 2016, already has an existing partnership with Lyft, Uber’s rival, to provide short-term rentals to those who pick up passengers through the app. GM will continue renting cars to Lyft drivers in San Francisco and a half-dozen other cities, while also working together on experiments with self-driving cars. GM has invested $500 million in Lyft in January 2016.

Annual revenue in the US taxi and limousine business is about $20 billion annually, according to research firm IBISWorld. In the global ride-hailing market estimated at around $100 billion, Uber has already captured bookings of about $5.4 billion in Q3 FY16. It remains to be seen how Uber channels its investments and makes use of technology to gain a leg-up in the highly competitive ride-hailing market.

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