Uber finally generates some cash after burning through $25 billion of shareholder money. But when will it need more money and when will the competition regulator take a closer look?
Uber shareholders were celebrating the Q2 results yesterday as they showed it created positive cash flow for the first time ever. The share price closed up nearly 19% despite recording a $2.7 billion loss for the same period.
Confused? You should be.
Silicon Valley has spent the last 2 decades reinventing economics to attract investor money into loss making businesses that use monopoly power to drive market share. Uber is an extreme case. Uber has been involved in some loss making non-core businesses such as diver-less vehicle technology. However, for the most part, the money has been spent on trying to muscle into markets where they are not welcome and throwing labour law out the window in the process. In cases where Uber has not been successful in building a significant presence (notably China and SE Asia) they have been aggressively over paying to take stakes in competitors such as Didi, Grab and Zomato.
Nothing stops in Uber when it comes to taking market share.
In regions where they are active, they have been aggressively subsidising their business over many years to force out the competition. It is amazing that so little has been said about the anti-competitive behavior that this company deploys. Of course consumers lover Uber; the shares holders have been paying a portion of the taxi fare for over 10 years. Well guess what? That’s going to change. With interest rates on the rise, investors are no longer interested in cash-burning tech companies. Instead they are looking for revenue generating stocks, that will survive a recession.
If Uber has technology that is so amazing, why have they needed to subsidise their customers with billions in hard cash? I remember the days when if I needed a mini-cab I would call the local office and they would locate the nearest driver. It’s really not that different to Uber and cannot justify such hyperbole statements such as “we are revolutionising mobility”. They built an app that connects passenger to driver, that’s it.
Will Uber survive a downturn without having to put in more cash? Recession is on the horizon. Increasing fuel prices, labour shortage and consumer concerned about the environment? It seems to me it that there are some major headwinds for the company (both short term and long term) My bet is it will be back to subsidising those rides again in Q3 & Q4 and their results will not be so great. But the big question is when will the competition regulator say enough is enough and we can go back to using our local taxi company again?