It seems the honeymoon is over for Uber Technologies, makers of the popular app that availed users of their wide pool of Uber drivers to hail rides from on the dot. In the first six months of year 2016, the ride-hiring giant lost a staggering $1.27 billion. And that’s not including taxes, interest, currency depreciation and amortization.
Uber finance head Gautam Gupta tells investors in a quarterly conference call, the topics of which were disclosed by sources to Bloomberg, that the primary reason for their company’s great reversal is the subsidies Uber pays out to its numerous drivers around the world. This perk that has enabled the ride-hailing service to inflict a massive change upon the transportation industry is now starting to bleed them.
The company lost $520 million during the first quarter and an additional $750 million for the second, according to TIME. In 2015 the total loss had been about $2 billion.
This current financial bind that Uber finds itself in has proven symptomatic for similar companies in its vein that start off servicing a locality – Uber is based in San Francisco – and then deciding to expand internationally, as reported by The New York Times. With Uber operations starting to open in one major city after another throughout the world, the service needed to get local drivers into its pool and fast. Thus they began providing subsidies to provide incentives for both Uber service driver and Uber app customer. In addition, more money went into service marketing and processing for national government regulators and run-of- the-mill taxi companies, which were not so pleased with Uber’s heavy-handed interloping.
To get this money the company has been fundraising like crazy from potential investors, who value Uber in their eyes as worth over $62 billion. Every few months, new investments from Goldman Sachs Group, Jeff Bezos of Amazon and the Saudi Arabian Public Investment Fund has garnered a steady stream of billions of dollars a month.
Driver subsidies then are what’re starting to drag Uber down. Over in China, the company went head to head against homegrown ride-hailing juggernaut Didi Chuxing, wherein both parties ran fast and loose with driver subsidies to increase their footprint in the market. It ended when Uber, realizing that they were giving more than receiving, foisted their Uber China subsidiary to Didi Chuxing. But it still threw money elsewhere like the $1 billion investment in Uber Global.
Not all is doom and gloom for Uber however. The second quarter of 2016 saw a growth in revenue, owing to more than $5 million worth in bookings for that quarter – a 31% jump and a $1.1 billion revenue increase.
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