Why Uber Is Continuing To Hemorrhage Cash

Because the service is inherently unprofitable. The company and its investors are subsidizing low fares in hopes of eventually driving competitors - including public transportation - out of business so that it can then raise prices based on its monopolist model. But with state and local governments fighting back, that is no longer looking like as sure a thing as it once did. JL

Ryan Felton reports in Jalopnik:

Uber passengers are paying only 41 percent of the actual cost of their trips; Uber is using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100 percent of their costs out of passenger fares.
Uber is continuing to bleed money, even as it shut down its operations in China, according to news reports. The company has reportedly lost more than $2 billion this year alone, and it’s in part because an Uber ride is really quite a bit more expensive than what you actually pay for.

Bloomberg, citing a person familiar with the company’s finances, reported the company has lost more than $2.2 billion in the first nine months of 2016. Over the same period, the ride-sharing company generated an about $3.76 billion in net revenue—the amount it generates after paying drivers.
So what’s the deal? Uber shells out significant subsidies for drivers, so much so, a company exec said earlier this year it comprises the majority of Uber’s losses, according to Bloomberg, which might strike some as strange, given drivers have protested for higher wages.
The company’s financial outlook was highlighted in a lengthy series by transportation industry expert Hubert Horan on the finance blog Naked Capitalism. In a nutshell, Horan illustrated how an Uber ride costs far more than we may be led to think. The reason: It’s dependent on the $13 billion in capital raised by investors. “Uber passengers were paying only 41 percent of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100 percent of their costs out of passenger fares,” Horan says.
The Bloomberg report noted that gross bookings—the total of fares charged before drivers get paid—jumped from $3.8 billion in the first quarter of 2016 to $5.4 billion in the third quarter. But the company’s reliance on subsidizing its drivers may prove fateful, especially if self-driving programs in Pittsburgh and San Francisco don’t lead to long-term changes in the Uber business model.
And as we noted last week, the partially-self-driving program in San Francisco didn’t get off to a hot start. The company is refusing to pay a $150 fee for a state permit to drive autonomous vehicles on California roads, and the state ordered the company to shutdown the service on its first day. This came after a video emerged showing one of Uber’s converted Volvo XC90s running a red light. (The company later said the vehicle wasn’t part of the program and blamed the driver.)

“There have been hundreds of articles claiming that Uber has produced wonderful benefits, but none of these benefits increase consumer welfare because they depended on billions in subsidies,” he wrote. “Uber is currently a staggeringly unprofitable company."