Uber lost $1.27 billion in the first half of 2016, according to Bloomberg, which on the surface seems like a lot of money. Okay, not just on the surface. It is a lot of money. But this is Uber we’re talking about! The most valuable startup in the world, most recently valued at $62.5 billion. So $1.27 billion in losses probably isn’t a big deal, right?
Well, yes and no. The context is certainly important. Bloomberg notes that the majority of Uber’s losses stem from the massive amounts of subsidies the company gives to its drivers. Most of those drivers operate in China, where up until recently Uber was locked in an insanely expensive battle with the country’s native ride-hail app, Didi Chuxing. Realizing it wasn’t going to beat Didi, Uber recently cut its losses and sold its Chinese operations to its competitor. As such, Uber won’t see any losses related to China on its balance sheet after August, sources told Bloomberg.
But the company’s prospects in the US aren’t as rosy as we were led to believe. In an interview earlier this year, Uber CEO Travis Kalanick said that while his company was losing $1 billion a year in China, its operations in its home country were stable. "We’re profitable in the USA," he declared. But in the second quarter of 2016, Uber lost $750 million, including $100 million in the US, according to Bloomberg.
Part of this is due to the fierce price war with Lyft. Uber lowers its fares, so Lyft lowers them further, and down and down they go, with each company forced to increase its subsidies to drivers to make up for the dirt-cheap fares. "Lyft pushed them hard here this year, which was one reason they had to give up on China," said Evan Rowley, associate professor of business at Columbia University. "Market share will be very valuable down the road."
Toward that end, Uber is doing very well. On that same investor call reported by Bloomberg, Uber said it controls as much as 87 percent of the ride-hailing market in the US. And it may continue to lose money until it puts Lyft out of business, which could take some time. Lyft reportedly tried, and failed, to find someone to buy it, but couldn’t find a company willing to take on its own massive losses. Both companies have significant cash cushions thanks to big investment hauls, so its likely the price war will continue unabated.
If anything, the report of Uber’s massive losses shines a light on a very clear fact: that while ride-hail companies have fundamentally altered the way people get around, they have yet to find out how to do so without losing offensive amounts of money in the process. Uber and Lyft are only in business because of their drivers. And drivers are a fickle bunch — they go where the riders are. The ride-hail companies try to command loyalty by often letting them keep more than the 75–80 percent of each fare they typically pocket. They spend a lot of marketing and promotions, like fare discounts and giveaways. But riders will always trend toward the cheapest options.
Which is why Uber is investing so heavily in self-driving cars. It just spent $680 million on the autonomous trucking company Otto, in the interest of bolstering its own (likely very expensive) self-driving research and development. Remove the driver from the equation, and profitability suddenly looks less out of reach.
Update, August 25th, 4:56PM ET: A spokesperson for Lyft sent the following statement: "Uber's alleged market share is a misleading and skewed statistic given that they offer service in more markets than Lyft. Our share in the top US regions, where the significant majority of rides occur, is greater than 20% and has grown substantially year over year. Our record setting results can be attributed to our team's hard work to treat people better by offering programs like in-app tipping which leads to happier drivers, better ride experiences and happier passengers."