Uber, the controversial and disruptive ride-sharing firm, could be preparing to go public. If it does, Uber’s initial public offering could be the hottest IPO of 2015. But despite the rumors, Uber CEO Travis Kalanick claims to have no plans to take Uber public.
That doesn’t seem to bother Howard Lindzon, co-founder and chairman of StockTwits (and also one of Uber’s early investors), who told Bloomberg Surveillance, “They’re going public. There’s no doubt that they’re going public.”
The New York Times has called Uber a unicorn, and “an illustration that Silicon Valley is in the middle of another bubble.”
Whether either of those claims are true is yet to be seen, but the fact still stands that Uber has expanded operations at an exponential rate and now offers services in more than 300 cities around the world.
Uber’s Record-Breaking Valuation: Fact or Fiction?
Last week, the Wall Street Journal reported that, after another round of funding, Uber’s new valuation is in excess of $50 billion, an amount that reached the mark faster than Facebook’s (FB) 2011 record for a private, venture-backed startup.
Over the past 5 years Uber’s popularity has spread like wildfire, as the service is now available in 59 countries throughout Europe, Asia and the Middle East, as well as throughout the U.S.
Uber, because it’s not (yet) publicly traded, doesn’t have to comply with the same requirements as publicly listed companies. This fact has been a point of contention for many analysts, especially considering Uber’s management has consistently remained guarded and vague about its revenue and expenses. As CNBC put it:
“It also keeps the general public in the dark from its finances and from having the ability to invest in Uber during the earliest, most rapid stages of its growth.”
Earlier this month, Gawker apparently obtained internal financial documents that prove “Uber has lost tens of millions of dollars since 2012.” According to those documents, Uber lost $20 million in 2012, $56 million in 2013 and $160 million in the first half of 2014. So even if Kalanick’s statement that Uber has been doubling revenue every six months is true, it also appears that Uber’s net losses are increasing at a similar exponential rate.
Beyond UberX: Uber Tests Food Delivery With Uber Eats
In April, TechCrunch reported on Uber’s plans to launch a merchant delivery program called UberRush, which would essentially turn the company’s growing fleet of personal taxi drivers into package couriers as well. At the time, it was speculated that Uber’s long-term intention went beyond local courier services, as indicated by the entirely separate smartphone app that delivery drivers would need to download.
Fast-forward a few months, and it appears as if TechCrunch may have been on to something.
On Monday, an update to the Uber app has shifted access to Uber Eats — a prepared-food delivery service for residents of New York City, Chicago, Austin and Los Angeles — to a more prominent location on the Uber app’s main screen.
So for Uber users living in the aforementioned cities, ordering lunch will be just as easy as hailing a ride through UberX.
While the Uber Eats program is still a pilot, management is convinced of its potential and is offering free delivery in select cities for the month of August. Ranging from $6 to $15, users can order a hot pastrami sandwich, barbecue brisket, salad and even Maine lobster.
Bottom Line on UberX and Uber Eats
While the UberX ride-sharing program has disrupted countless taxi markets in cities across the globe, there’s significant evidence that Uber’s ability to continue operations cannot last forever.
For one, UberX drivers operating their own vehicles as for-hire taxis has put the company’s methods under regulatory scrutiny in nearly every market. In fact, a number of cities have banned UberX services entirely, citing the dangers associated with improperly-licensed drivers.
Secondly, Uber’s brute-force modus operandi — which has been to simply ignore local laws and regulations, as well as protests and objections from both cab companies and city officials — will eventually catch up and result in significant fines, if not outright bans in many markets.
Additionally, Uber has been entwined in legal troubles regarding the classification of UberX drivers as employees or independent contractors.
Currently, Uber claims all drivers are contractors, but in June the California Labor Commission ruled that an UberX driver was indeed an employee:
“Given that Uber has been in business in California for six-and-a-half years, the approximately $400 million Uber owes (for employee taxes and benefits in 2014) could be at least tripled to $1.2 billion.”
That said, if the ruling in California leads to similar rulings in other jurisdictions, Uber would be forced to increase rates to cover the costs of its new employees, essentially destroying one of its most advantageous features.
So with shady financials and a plethora of legal and regulatory battles looming on the horizon, investing in an Uber IPO doesn’t seem like a wise decision at this point.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.
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