Home Stock list Is Uber’s money-losing ride finally coming to an end?

Is Uber’s money-losing ride finally coming to an end?


Uber posted a loss of $5.9 billion in the first quarter of 2022.

Philippe Pacheco | AFP via Getty Images

In this weekly series, CNBC takes a look at the companies that made the inaugural Disruptor 50 list 10 years later.

The creation of Uber in the aftermath of the 2008 financial crisis can be compared to an earlier disruptive innovation: the supermarket.

In 1930, in the early months of the Great Depression, Michael J. Cullen rented a vacant garage in Queens, New York, and built King Kullen, which is widely considered the very first supermarket and an example of the model” integration of resources”. who created the Uber ecosystem.

Like King Kullen, Uber is the result of a “smart integration of resources” by its founders, serial entrepreneurs Travis Kalanick and Garrett Camp.

At the time of Cullen’s innovation, none of the major dry grocery chains in existence, including two of Cullen’s former employers, Kroger and A&P, had thought of doing what he did. But its merits were clear, and the idea quickly caught on – the classic definition of disruptive innovation.

Unfortunately for Uber, the comparison doesn’t end there.

King Kullen’s business model proved easy to replicate, and eventually the big chains did just that. Today, Kroger is America’s largest supermarket chain, with a national market share of 16.1%; King Kullen remains a local channel.

Since Uber’s inception, a number of competitors have emerged in what we now call the gig economy, whether it’s Disruptor 50 companies like Lyft in ridesharing, DoorDash in food delivery, or Convoy in freight and trucking.

Over the past decade, Uber has faced a myriad of obstacles, both internal and external. These include allegations of sexual harassment, a series of firings linked to a workplace culture investigation, the alleged distribution of a rape victim’s medical records; as well as unflattering videos and emails from former CEO and co-founder Kalanick. In addition, there were political pressures and struggles with regulators; union tensions, a legal battle with Alphabet, major losses and infighting between investors.

Then, in 2017, the company tapped CEO Dara Khosrowshahi, who had led Expedia since 2005 and was credited for expanding its global presence through several online travel booking brands, including Expedia. com, Hotels.com and Hotwire. The move ended Uber’s long search to replace Travis Kalanick, who quit following a shareholder uprising and went on to become one of Silicon’s biggest and most notorious startup founders. Valley. Similar to Theranos’ Elizabeth Holmes and WeWork’s Adam Neumann, her rise and fall at Uber has become the subject of TV drama.

How Uber fared in the post-Travis era

By most accounts, Kalanick was maniacally determined about Uber. But in 2019, when he quit the board and sold all of his shares in the ride-hailing company, Kalanick severed his last ties with the company he co-founded. Two years later, he was on the New York Stock Exchange when the company went public, although he was not on the dais with company executives.

The company immediately got a valuation north of $80 billion and then fell like a stone. This experiment – bringing a company to a massive valuation that indicated in its S-1 filing that there was a chance it would never make a profit – produced a mass sentiment shift among savvy investors and buyers at detail. At the time, Josh Brown of Ritholtz Wealth Management described it as “a moment when time is up.”

Of course, even Brown couldn’t have predicted that this moment could actually come a year later in the form of a global pandemic that would put nearly every business in survival mode.

Ride-sharing companies have struggled with supply and demand since Covid-19 took drivers off the road. Uber had to rely on incentives to bring drivers back, which ate away at finances. This seemed to be leveling off in recent months, but the war in Ukraine has caused major fuel price hikes. Analysts feared the companies would have to pay millions to keep the drivers.

“Our need to increase the number of drivers on the platform is neither new nor a surprise…there’s a lot of work ahead of us, but it’s a running machine,” Khosrowshahi said recently during of a conference call with investors. The company expects this to continue without “significant additional incentive investments”.

The company posted its first-ever quarterly profit at the end of 2021, but then posted a massive loss due to investments in the first quarter of this year.

During Khosrowshahi’s tenure, the company invested heavily in its grocery, beverage and convenience delivery segment through acquisitions, such as liquor delivery service Drizly last February, as well as Postmates, after talks failed to acquire food delivery service Grubhub. Yesterday Uber shares fell 4.3% after news that Amazon had agreed to take a stake in Grubhub as part of a deal that will give Prime subscribers a one-year subscription to the delivery service of food.

Focusing its acquisition efforts on its Eats segment during the pandemic has allowed the company to retain some of its business despite reduced travel. It will also continue to propel the stock forward, investors say.

Another key element for the future is the business regulatory environment.

Lawmakers have pushed to reclassify gig workers as full-time employees in an effort to secure things like a minimum wage and benefits. But classifying drivers as contractors allows companies to avoid costly perks associated with a full-time job, like unemployment insurance.

Gig economy companies, including Uber, won a temporary victory in 2020 in California, when voters overwhelmingly approved Proposition 22. This ballot measure effectively exempted several gig economy businesses from the state’s recently enacted law, Assembly Bill 5, which sought to categorize their workers as full-time employees.

But there really is one overarching goal for Uber when it comes to the market, and it has become immediate: to generate “meaningful positive cash flow” for the year 2022, which would mark a first for the company.

Khosrowshahi says Uber is on track to do just that.

—CNBC David Spiegel and Jessica Bursztynski contributed to this story.

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