Uber: pricey and unprofitable

It can’t do food profitably either
The ride-hailing giant is gearing up for a flotation that will see it valued at $100bn. That looks very expensive. Matthew Partridge reports.

The year of gig-economy flotations continues, says Aarian Marshall in Wired Magazine. Ride-hailing app Uber has released the prospectus it filed with authorities ahead of its initial public offering (IPO) later this year. The papers reveal “a sprawling transportation business with operations in 63 countries and 700 cities, providing 5.2 billion rides in 2018 – roughly one for every person in Europe and Asia”. While the company is losing large sums of money, strong sales growth and current annual revenue of $11bn mean that it is likely to be valued at up to $100bn, slightly short of Facebook’s $104bn valuation in 2012.
Investors may have to wait ages for the company to become profitable, say Shannon Bond, Nicole Bullock and Tim Bradshaw in the Financial Times. Despite trying to overcome the image of “a highly aggressive company bent on destroying its rivals”, its IPO documents “show that it plans to keep spending heavily to win market share, even if it continues to rack up multibillion-dollar annual losses”. It is currently engaged “in price wars with rivals around the world, from Lyft in its home market to Ola in India and Didi Chuxing in Latin America”.
There are also reputational concerns, says Julia Carrie Wong in The Guardian: “references to the company’s checkered past are littered throughout” the prospectus. Controversies include allegations that Uber prevented regulators from investigating allegations of assaults by drivers. Perhaps the biggest “elephant in the room” is the treatment of its drivers, currently classified as independent contractors. Uber admits that, “if it is forced to start classifying drivers as employees, it will have to fundamentally change its business model”.
Is Uber the new Amazon?
Uber’s problems with its core business may not matter if it is able “to entice investors” by comparing itself to Amazon, says Olivia Zaleski for Bloomberg. Just as Amazon turned itself from “a money-losing internet bookseller” into the “world’s biggest online retailer – the everything store”, Uber says that it intends to evolve from a “maturing but still unprofitable ride-hailing operation” into “a global transportation platform”. The aim is to convince people that it is a “transportation and logistics market-maker” that can create and supply “new demand for everything from scooters… to freight and food delivery” in order to take a slice of the “multi-trillion-dollar” transport market.
Oh please, says Robert Cyran for Breakingviews. Uber may claim that “its target market for mobility, meal delivery and freight is worth 5% of global GDP”, but it is deluded if it thinks that expansion into these areas is going to help it escape “fierce competition”. Already, “delivering meals is proving just as tough” as offering car rides profitably. And rivals aren’t going anywhere. The upshot? Its “reach may exceed its grasp”.
Disney takes the fight to Netflix
Disney is fighting back against the technology groups “that have upended Hollywood”, says Anna Nicolaou in the Financial Times. Chief executive Bob Iger has laid out ambitious plans for a streaming service. Disney + will play shows and films from its popular franchises such as Marvel and cost $7 a month, compared with $13 for a Netflix subscription. The move “comes a few weeks after Apple made a splashy presentation for its own streaming service featuring Oprah Winfrey and Steven Spielberg”.
Disney’s shares may have soared “to a record high” in the wake of the news, “but it still isn’t clear how much share Disney can take from Netflix”, says Elizabeth Winkler in The Wall Street Journal. While it expects to have between 60 and 90 million users by the end of 2024, that “would still put it behind” Netflix’s 139 million. What’s more, as well as the large upfront investment costs, Disney will be losing around $150m a year in fees from Netflix as it pulls content off the rival platform. Disney’s films “require a suspension of disbelief”, says Tara Lachapelle on Bloomberg. So does the notion that the best path forward for Disney is to be distilled into a $6.99-a-month app” .
While the channel will appeal to “superfans of the Disney brand”, it “needs to break out beyond that audience” to enable the move to make a return on its investment. There is also the risk of indirect adverse effects, “such as fewer people going to cinemas and instead waiting for films to be added to Disney +”.
City talk
• Texas’s Permian Basin is “America’s most productive oilfield, despite a patchwork of plots with hundreds of owners”, says The Economist. Shale companies also look cheap, “with investors sceptical about firms’ ability to produce both oil and profits”.
So it’s not surprising that Chevron has announced that it will pay $33bn for Anadarko, an independent outfit with a major Permian presence. The deal makes Chevron the industry’s second-biggest listed oil producer, behind only ExxonMobil. It is also “the latest sign of shale’s growing importance to the world’s biggest energy firms”. Expect further consolidation. Royal Dutch Shell is thought to be keen on Endeavor Energy, which produces in the heart of the Permian Basin.
• What a turnaround, says Oliver Shah in The Sunday Times. Five years ago Tesco “was on its knees”, having been “hugely overexpanded” by Terry Leahy and then “catastrophically mismanaged” by Philip Clarke. When Dave Lewis was appointed chief executive in 2014, a rights issue seemed imminent. But last week
Tesco announced a surge in operating profits and said debt had almost halved to £12bn since 2014. So will Tesco “announce a special dividend or share buybacks as it gushes cash?”.
• Profits at Goldman Sachs have “slumped” by 20%, raising questions “about whether Goldman’s business focus and strategic priorities are appropriate”, says
Laura Noonan in the Financial Times. Goldman’s poor performance is particularly galling since it comes at the same time as rival JPMorgan “set the record for the highest ever quarterly profit of a US bank”. Still, JPMorgan faces its own problems, including a lack of provision for “fallout” from Malaysia’s 1MDB corruption scandal, “for which it is being sued in Malaysia”.

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