[ChiragM]

According to a media report, Uber India is projected to post revenue of Rs. 339 crore for its ride-hailing service and a negative of Rs. 762.5 crore for its food delivery service for the five month period between August and December 2019. During the same period, the operating loss is projected to be Rs. 2,197 crore for its food delivery business and 1,645 crore for the rides business, bringing the total to Rs. 3,842 crore.



The report suggests that the negative revenues maybe because the commission revenues are lower than the cost of delivery, high refunds to consumers and Uber paying restaurants which don't give discounts. Uber claims that India is a market where they are funding the eater, the courier as well as the restaurant in terms of building the business.

Globally, Uber's quarterly results show marginal gain in bookings and monthly active users. Uber beat its quarterly revenue and loss estimates and improved its annual loss forecast. The ride-hailing service is looking to turn a profit by 2021. The company posted an adjusted loss of US$ 585 million, while analysts' estimates were US$ 808 million. Shares also fell 5% after the results.

The company is looking to reduce spending, cut around 1,200 jobs, reduce rider discounts and driver incentives and could also exit from a few markets. More services like bikes, scooters, helicopters, public transportation, as well as food and grocery delivery could help Uber post a profit.

Link to Team-BHP News

Sources: 1, 2

[superbad]

White collar ponzi scheme - Pumping capital into a business in hopes of increased market valuation & a potential sale to a third party at a higher valuation, all the while never posting even a single profitable quarter.

[audioholic]

I am completely a noob in this field, but what happens to the companies/individuals who invest in these startups? When such a company gets loads of funding, when and how can the investors expect a return?

[Miyata]

The writing's been on the wall all along - nothing unexpected has happened! Globally they have been losing quarter after quarter but growing as well.

From this forbes article -

It proves how the company is aiming at winning a sizable market share in several different sectors of the transportation industry.

[Red Liner]

Originally Posted by audioholic

I am completely a noob in this field, but what happens to the companies/individuals who invest in these startups? When such a company gets loads of funding, when and how can the investors expect a return?

Either through an acquisition by another company: Walmart buying flipkart. Existing investors sold their stock and cashed out.

Or through an IPO: Uber, Facebook, Amazon, Google etc.

[SmartCat]

Originally Posted by audioholic

I am completely a noob in this field, but what happens to the companies/individuals who invest in these startups? When such a company gets loads of funding, when and how can the investors expect a return?

Let's suppose you invest Rs. 10 cr in a startup for a 10% stake. This means the startup has a valuation of Rs. 100 cr. Let's assume that this startup makes huge loss on tiny revenues. Naturally, this gets all the investors excited and the founder is now looking to raise capital at a valuation of Rs. 500 cr.

As an old investor, you now have multiple options:

- Sell your entire 10% stake to a private equity fund for Rs. 50 cr (since the valuation has gone up) netting a cool profit of Rs. 40 cr on your investment.

- Invest more money at the new valuation (5x higher) to keep your 10% stake in the company.

- Do nothing. If you do that, your original 10% stake in the startup falls to 5% or 1% or lower, on every capital raising exercise. You will still be super-rich (on paper) with just 0.5% stake because this startup is now a "unicorn" (billion dollar valuation)

[Rajeevraj]

Originally Posted by SmartCat

- Sell your entire 10% stake to a private equity fund for Rs. 50 cr (since the valuation has gone up) netting a cool profit of Rs. 40 cr on your investment.

- Invest more money at the new valuation (5x higher) to keep your 10% stake in the company.

- Do nothing. If you do that, your original 10% stake in the startup falls to 5% or 1% or lower, on every capital raising exercise. You will still be super-rich with just 0.5% stake because this startup is now a "unicorn" (billion dollar valuation)

Nice summary-Thanks. Another noob question- So basically isn't this all a big empty bubble? Any business has to make some money at some point. Without that, pumping in money and increasing the valuation will at some point stop as investors stop investing and start backing out. I guess some companies can burn money forever. But I assume they should be very few.

[V.Narayan]

Vast volumes of idle wealth - the royal family of Saudia, some oil tycoons, some dictators from Africa - they all need a place to invest. In come Soft Bank & Co. They believe that by buying out entire markets with a deep price discounting strategy, thus hooking the retail customer, destroying the local competition and one day when they are a monopoly or a duopoly they can demand the price they desire at the expense of the captive and helpless customer. Or at least such is their thinking. Technically such deep discounting with the clear aim of eliminating competition should be a restrictive trade practice that should invite Govt intervention. But In India at least as FDI is coming in the Govt chooses to look the other way. Will the customer benefit in the medium or long run - I doubt it. Watch how the Jio story unfolds - same principle.

On one day Uber needs to be appreciated for the IT backbone it built and the way idle or waiting taxi resources are used more efficiently and passengers get cabs at odd places and even for short stretches. Must give the devil his due for this. But allowing them to build a monopoly or a duopoly with Ola is not wise for Indian road transport or the passenger.

Softbank's fund raising and shuffling its investments between its various funds is a Ponzi scheme waiting to unfold but that story for another time. Softbank is spelt BERNIE MADHOFF

[SmartCat]

Originally Posted by Rajeevraj

Nice summary-Thanks. Another noob question- So basically isn't this all a big empty bubble? Any business has to make some money at some point. Without that, pumping in money and increasing the valuation will at some point stop as investors stop investing and start backing out. I guess some companies can burn money forever. But I assume they should be very few.

If there is cash burning startup with billion plus dollar valuation, it usually means the business has the potential of "disrupting" existing old-school business. Otherwise, it is unlikely that private equity funds will keep pumping in money at higher and higher valuations.

Some desi "disruptive" startups:

- Ola Cabs (personal transport)
- OYO Rooms (standardized hotels)
- BYJU's (Education/Tuitions)
- Rivigo (logistics)

and so on.

These startup valuations will deflate slowly like a balloon when there is new better entrant in the same field. Not much harm done, except for personal financial losses for investors. But whenever there is global financial crisis (Eg: 2000, 2008 etc), startup valuations turn into bubbles and pop. Blood flows on the private equity street then.

[ChiragM]

Originally Posted by SmartCat

These startup valuations will deflate slowly like a balloon when there is new better entrant in the same field. Not much harm done, except for personal financial losses for investors. But whenever there is global financial crisis (Eg: 2000, 2008 etc), startup valuations turn into bubbles and pop. Blood flows on the private equity street then.

People with no money invest the money they dont have in a company that just grows bigger and bigger by losing money they dont have and then when the financial crisis hits, everyone realizes that they are broke and no one has any money.

[adi.mariner]

Originally Posted by SmartCat

Let's suppose you invest Rs. 10 cr in a startup for a 10% stake..

Thank you for the explanation. It may be another noob question. Making profit must be the sole reason for starting a business. So who are the ones making money in this if Uber shows losses all the time? Is it only the early investors who have sold their stake and gone out at the correct time?

[naveenroy]

Originally Posted by adi.mariner

Thank you for the explanation. It may be another noob question. Making profit must be the sole reason for starting a business. So who are the ones making money in this if Uber shows losses all the time? Is it only the early investors who have sold their stake and gone out at the correct time?

Like superbad has mentioned below the working of a Ponzi scheme - my belief is that the initial investors (as in Ponzi schemes) have made their money and are laughing at the poor fools who invested late in this white collar crime (scheme).

Originally Posted by superbad

White collar ponzi scheme - Pumping capital into a business in hopes of increased market valuation & a potential sale to a third party at a higher valuation, all the while never posting even a single profitable quarter.

Well said. Since it is white collar, it is not a crime. When a chit fund is run this way...well, you get the drift.

[SmartCat]

Originally Posted by adi.mariner

So who are the ones making money in this if Uber shows losses all the time? Is it only the early investors who have sold their stake and gone out at the correct time?

Can't say for sure if new investors in Uber will make money or not.

Making profit must be the sole reason for starting a business.

Uber is still in "investment phase". They were/are investing cash into -

- Expanding ride sharing business in multiple countries.
- Food delivery (UberEats)
- Autonomous driving
- Logistics (freight)

and what not.

Perhaps, if they had just concentrated on ride sharing business in a handful of countries, they would have been profitable today. But then, revenue growth would have been 10%, and not 30 to 40% (current trend).

[GTO]

Enjoy the super low fares while you can, guys. The current Uber & Ola rates simply aren't sustainable, even with their low cost operating model of app-only ordering & zero customer support. I can go from Prabhadevi to Andheri for just 200 bucks in an Uber hatchback or 250 bucks in a Dzire / Xcent. That 200 bucks for the air-conditioned WagonR is merely 40 - 50 bucks more than a ride in a basic, non-a/c black + yellow rickety taxi.

Bottomline of the headline = prices can & will go up one day. We have already seen Ola take the lead in the same (related thread (Why is Ola suddenly more expensive than Uber?)).

[AMG Power]

Originally Posted by Rajeevraj

So basically isn't this all a big empty bubble? Any business has to make some money at some point.

Actually the business of Uber that the owners / investors are interested in is not the ride sharing business but the business of reselling its shares at every higher valuation and far from being a bubble it's making more money for them than the ride sharing business ever will. If Uber ever became profitable it would make far less money for its investors. None of the wiser investors would be interested at the ride sharing business of Uber when the hype works more in their favour.

And this hype / concept has progressed from sharing cars owned by others to sharing hotel rooms owned by others to sharing restaurants owned by others and so on. So if one can think of anything similar, you just have to create an app for it and you could be in business till the hype busts.

Originally Posted by V.Narayan

Watch how the Jio story unfolds - same principle.

There's just one difference - Uber survives on private equity funds while Jio is milking the government owned banks - read that all of us will be funding Jio when the government decides to waive its loans. As they say, there is no such thing as government funding only tax-payer funding.