A rough road

The risk factors in Uber's IPO prospectus are alarming

Ride-hailing pioneer Uber has filed the initial documentation for an initial public offer and is probably aiming to raise about $10 billion, with a valuation of about $100 billion. Alongside its lofty mission statement, Uber has printed a disclaimer suggesting that it expects its operating expenses to increase significantly, and that it may not achieve profitability. Even as it listed a large swathe of transportation-related businesses it is interested in, Uber has also warned investors that these could be dead-ends. The filing highlighted the platforms Uber runs across 700 cities in 63 countries. The core idea — using software to match rides and passengers — is, by far, the biggest contributor to revenues. Ride-hailing generated $9.2 billion in 2018, out of the total revenues of $11.3 billion, with an impressive 42 per cent growth rate over 2017. Uber is also into food delivery, developing self-driving cars, pooling, on-demand scooters and bicycles, freight-trucking and research into flying cars.

Ten years into its existence, Uber had a $3 billion loss on operations in 2018. It has made $987 million net profits mainly because of the sale of its South-East Asia business to Grab for $5 billion. Uber also has $6.9 billion in long-term debt. But Uber does seem upbeat about growth. It says it holds less than 1 per cent of market share in terms of the miles (4.7 trillion) logged on personal transport in the 63 nations where it has operations. It sees ride-hailing as a $5.7-trillion “opportunity” and its meal delivery business, Uber Eats, as a $795-billion one. The company estimates the Uber Freight business, where it matches shippers and carriers, as a $700-billion market opportunity. Beyond this, there are “advanced technologies, including autonomous vehicle technologies”.
 

However, there are several problems: Ride-hailing, freight-matching and meal delivery are all easily replicable. Indeed, Uber has lost out to Didi, Yandex and Grab in key regions. It is fighting to retain market share versus Lyft in North America and Ola in India, which is one of its biggest markets. In the Indian meal delivery business, Uber Eats is fighting to gain traction against entrenched locals — Zomato and Swiggy. There are multiple regulatory worries as well. It has been hit by bans in several jurisdictions for flouting local laws. It has a love-hate relationship with its 3.9 million drivers, who have filed many class-action suits, demanding they be considered Uber employees. Plus, there are problems with an allegedly toxic work culture. Founder-promoter Travis Kalanick was forced out as chief executive officer after many unsavoury incidents and allegations. Uber has also been sued by Waymo, Alphabet’s autonomous vehicle arm, for intellectual theft, and it paid $128 million in a settlement that may not be final.

The jury is out on whether Uber can surmount these issues and challenges. It sparked a revolution when it launched its ride-hailing concept. But it might find itself outpaced by later entrants or forced out by regulatory changes even though it initiated radical change in the transportation industry. While the profitability part can be treated as a standard disclaimer in IPO documents, the fact is that Uber’s risk factors run into 35,000 words. And the warning may indeed be real, as only 16 per cent of the technology firms that went public last year were profitable.