Will Uber ever make money? Balance sheet day counts for a carpool company | Technology

Uber has big plans. The mobile phone service wants to transport the world in autonomous cars and on electric scooters, deliver our take-out orders and our drone races, and ship the freight by robot robots. But first, Uber has to answer a big question: will he ever make money?

This week, Wall Street will have the opportunity to ask this question.

Uber went public in May in one of the most anticipated initial public offerings in years. To say that it is down would be a euphemism. The shares were sold at a discounted price of $ 45 each and dropped on the first trading day, costing initial investors $ 618 million – the largest loss on the first day of the IPO since 1975.

On Wednesday, Uber publishes its second set of results as a public company. This update comes after the company announced the cancellation of 400 jobs in order to control its uncontrollable spending.

After a deadly price war with its competitors, Uber's once robust earnings growth has flattened out and losses have increased. Despite 91 million US subscribers and net sales of $ 11.3 billion in 2018, Uber's losses totaled more than $ 3.7 billion for the month of March, the largest loss ever. important record for a start-up leading to an IPO.

"The reality is an $ 80 billion company that has not been proven yet," said Matt Kennedy, market strategist at Renaissance Capital, which manages exchange-traded funds that focus on IPOs. stock Exchange. Investors, he says, hold their breath, and even his decision to cut a third of his marketing department does not appease Kennedy.

He said: "It is unusual to experience a big upheaval just after an IPO. They still need to improve the model because it loses $ 2 billion a year. There is still a lot of uncertainty about the car pool industry, which is reflected in the price of the shares. "

After announcing the layoffs this week, Executive Director Dara Khosrowshahi told her employees that there was a general sense that the company's expansion was slowing.

He said, "This is something we need to address quickly. Many of our teams are too big, which creates duplication, makes decision makers unclear and can lead to poor results. I am here to win a race that really matters. "

The layoffs come one week after two board members, Arianna Huffington and Matt Cohler, a Benchmark general partner, while Uber's largest outside investor, announced that they would follow the first employee of the company. Uber, Ryan Graves, to withdraw.

In June, Khosrowshahi fired two members of its management team: Barney Harford, director of operations, and Rebecca Messina, director of marketing.

But the question of whether Uber is a company with a bad business model, or a company with bad management and a good model, or a bad one in both areas, remains to be solved.

Uber's workforce cuts occurred while Lyft, its competitor, accounted for 29% of the market share market, up from 69%, and after an equally challenging IPO, announced the departure of his chief operating officer, Jon McNeill, after less than two years of work. .

The question for investors is whether the turbulence at Uber has been resolved. This week's figures could help establish the viability of the carpool model, but it will hardly answer questions about its new activities, such as the delivery of food and commodities, or broader questions about the company's point of view. from a regulatory and management perspective.

"We will not have predictable profitability," Khosrowshahi said last November. If shareholders want a profitable company in a predictable way, he added, "Go buy a bank."

Not all badysts are pessimistic. In a note addressed to investors this week, Dan Ives of Wedbush Securities said: "One of the fundamentals of our thesis rests on Uber's ability to turn its carpool platform into a consumer driver. broader with Uber Eats and autonomous initiatives. "

According to Ives, Uber is effective in leveraging loyalty offers from Eats and carpooling users – and these components of the business model "were already well on their way".

"Ultimately, we believe that Uber's main differentiator is that it is the only one of its competitors to hold a leading position in the two great opportunities on a global scale. We maintain our notation OUTPERFORM. "

Kennedy's optimism is strictly limited.

"They spend a great deal of money on encouraging drivers and acquiring new customers, so over time they should go down and profitability should improve," he said, while warning that "there is a lot of room for improvement." a company coming out of an IPO should be "booming".

"Investors risk fleeing if the financial situation starts to deteriorate at this stage and it is possible that extremely poor results in the next quarter will drop the stock price," said Kennedy.

"They can prove that they can achieve profitability in their mature markets and then grow on a global scale, the sky is the limit."

However, Uber's management and ongoing regulatory issues remain unclear. Under Khosrowshahi's predecessor, Uber co-founder Travis Kalanick, a series of scandals erupted in society, ranging from allegations of badual harbadment and discrimination to allegations that she used software to evade local authorities and that she would have stolen the secrets of self-driving.

Uber has been at the center of at least five US Justice Department investigations, including violations of the law on corrupt practices abroad, and has run into drivers accusing them of cutting their wages to expand their business.

In California and Mbadachusetts, Uber agreed to pay $ 20 million to settle a long fight against drivers campaigning to be considered employees. In Germany, Uber was briefly forced to cease operations after regulators discovered that he was operating an illegal taxi service.

Problems with Uber's business model can be solved, says Carl Tobias, an expert in corporate governance at the University of Richmond, but regulatory and corporate culture may be insoluble.

"There are a myriad of issues that always worry them, most of them are legal, regulatory or litigation," Tobias said.

"They thought they made a lot of noise with the IPO, but that was not enough, they do not seem to have solved or improved the problems, I'm not sure that the culture is cured."