The most astounding thing about Uber’s long-awaited announcement of its listing is not its expected $100bn valuation but the admission that it “may not achieve profitability”.
For many years the ride-sharing service was the most valuable startup in the world and has been the poster child of the so-called gig economy. But the 10-year-old company has been beset by problems, from its toxic male-orientated “tech bro” culture and sexual harassment of female employees to serious misgivings about its corporate governance. It has been revealed that it had special software to thwart law enforcement agencies from catching rides (called Greyball), while employees could track individual users (including former romantic partners), while co-founder and CEO Travis Kalanick was forced to resign after a video of him ranting at an Uber driver went viral.
Current CEO Dara Khosrowshahi has tried to reform this culture and convince investors that it’s a different company, and like other loss-making tech giants, it will become profitable after floating itself.
It’s $100bn valuation means it’s worth more than motoring giants General Motors and Ford put together. It will be the largest IPO this year, eclipsing that of rival Lyft which listed three weeks ago and was trading last Friday 17% down from its opening share price of $72 at $60. It’s listing was “the worst thing to happen to the IPO market,” according to TheStreet.com, which described it as a “disaster”.
Some concern is obviously about Uber’s impending listing. But Uber’s own finances are quite astounding. In 2018 it had $11.27bn in revenue and losses of $1.85bn, according to its listing filing with the Securities and Exchange Commission (SEC). It has been losing an eye-watering $800m a quarter. No wonder it warned that “We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability”.
There is a fundamental problem with Uber, Lyft and the so-called gig economy. In the past, when someone worked for a company, that firm paid for the things that an employee needed to do their job. There was also an exchange of labour for a series of benefits, including paid leave, health insurance and pension contributions. That is the traditional model of employer-employee relationships.
The gig economy supposedly changed that, with companies like Uber able to save on these expenses. But those costs of doing business – like the running costs of cars, petrol and insurance – and benefits – like leave, health care and pension – never went away. The gig economy just transferred these to the workers themselves. And called them “partners”.
Only 4% of drivers stay on after a year, according to a 2017 report, mostly because of pay. There are countless stories of drivers sleeping in their cars at conferences where they travel to make money, or stuck driving because they bought cars they need to pay off. There are countless court actions to get drivers reclassified as employees, amongst other legal challenges still facing it.
That is not to say I don’t love Uber as a consumer. I can land in any country and open an app, get a reasonably priced ride and won’t be ripped off by unscrupulous taxi drivers. As a consumer, Uber is a wonder. As a driver, not so much.
Interestingly, the most profitable part of its business is Uber Eats. What does it say about our western civilization that the most valuable US startup and biggest listing makes its money from takeaways?
This column was originally published on Financial Mail