Uber’s year of efficiency is backfiring. The ride-hailing app’s 2017 goal was to grow while minimizing subsidies and cash burn. Instead, losses accelerated by a third, to nearly $1.5 billion in the third quarter, from the previous three months. Uber faces a slew of problems, but has yet to answer a basic existential question: Can it develop a sustainable business model?
The company’s top line is, at least, expanding at an impressive pace. Net revenue, the amount of money Uber makes from rides after its drivers are paid, grew to $2 billion, or 14 percent more than the second quarter. Annualize that, and Uber is growing at nearly a 70 percent clip.
The company’s exit from cash-sucking markets in China and Russia was supposed to improve margins, as Uber concentrated more on markets where competition was limited, like the United States.
It hasn’t worked out this way. Its slew of scandals revitalized rival Lyft. And Uber’s newish boss, Dara Khosrowshahi, said this month that the American market was “very, very competitive right now between us and Lyft” and that he didn’t see it “as being a particularly profitable market for the next six months.”
Perhaps this is all just a symptom of too much money. Once venture capitalists, mutual funds and sovereign-wealth funds tire of pumping cash into ride-hailing companies desperately trying to gain market share, the survivors will have to find a way to turn a profit. The fact that Uber lost about $1.5 billion when revenue was only $2 billion suggests it won’t happen anytime soon. It also implies the business isn’t worth anywhere near the $48 billion that SoftBank may be about to pay current shareholders for some of their stock — let alone the almost $70 billion Uber fetched in an earlier funding round.
Moreover, Mr. Khosrowshahi faces multiple other problems. The company’s image suffered another setback when it emerged this month that Uber had paid the perpetrators of a data hacking $100,000 to keep the breach secret. Its courtroom battle against Alphabet’s self-driving car unit, Waymo, took a bad turn this week, too: The judge said he no longer trusted Uber’s lawyers in the case, in which Uber stands accused of stealing intellectual property.
On top of that, a number of key positions still need filling after a stream of departures. It’s astonishing, and worrisome for Uber, that problems of this magnitude are secondary to figuring out how to make a profit.