Uber could be the next FTX in 5 years’ time.
A complete and utter rug pull that no one saw coming.
Although Uber is as ubiquitous as the rising sun in the gig-economy space — and we can all agree much better than the taxi service of yore — they have had negative cash flow since 2014 and aren’t exactly known for their great decision-making or customer relations with drivers.
Uber’s negative cash flow could fly during the 2010s when startups banked on criminally low-interest rates and low inflation but, as I’ve written about, the “easy money” era is over.
We’re in a post-pandemic era now.
This is Uber’s make-or-break moment.
And I’m no longer feeling Uber über alles.
Uber grew too fast for their own good
In the wake of the 2008 Financial Crisis, Uber was born out of a combination of clever resource integration and venture capital money.
They created an app that people liked, used, and put money into.
All they had to sit and count their money.
But they fucked it all up.
Since its inception, Uber has navigated a litany of controversies from allegations of sexual harassment, to regulatory clashes, and more recently, investigations into its toxic barely-profitable workplace culture.
A recent driver-led study showed that Uber and Lyft drivers net less than $7 per hour (after “wear and tear”) in California. Couple this with the fact that drivers are demanding more pay and customers are demanding lower costs and you get a recipe for financial disaster. A literal shitstorm.
So if Uber is paying their drivers the equivalent of a Happy Meal, where’s all that money going, you may ask?
It’s been reported that Uber is burning somewhere between $1 and $2 billion a quarter — with most of that being spent on bad investments; most notably autonomous vehicle technology companies Aurora, Grab and Zomato.
Instead of paying their workers a competitive wage, they lost $1.1 billion from their Aurora investment, $520 million from Grab and $245 million from Zomato — and we’re only scratching the freaking surface here.
Uber has a shit cash flow model.
They don’t have consistent cash coming in and we’re heading into a recession where travel demand has peaked and Americans are finally starting to spend less. As the CEO of Uber’s rival Lyft put it, a $30 salad delivery can’t last forever in an inflationary environment.
Uber Vs. Lyft: Who monopolizes who?
Short answer: Uber
Lyft is headed to financial ruin as we speak.
What could be worse, however, is if both companies bleed each other dry like two sharks in the same tank heading into the 2023 recession:
Okay, alright, let’s be fair here and give Uber the Goldilocks treatment and say they bankrupt Lyft and become a monopoly.
It would definitely help with their cash flow problems, and it would give them more control over the market, but a monopoly would instantly kill growth.
Uber is everywhere.
A rapper even made a song about that:
“Look, Uber everywhere, pre-rolls in the VIP
Yeah, Uber everywhere, pre-rolls in my VIP
Uber’s $28 stock is priced with significant growth in mind.
A monopoly, however, means no growth with the amount of global macroeconomic exposure that Uber already has.
The only place they have left to go is automation and that venture is going to take a lot of time and billions of dollars to waver out.
Like eating a burger sandwiched between two Krispy Kreme donuts, a monopoly only sounds good on paper. Uber has to solve its core regulatory and balance sheet risks for it to exist in 5 years.
The future of Uber
It’s very simple.
Uber’s end game is driverless cars. This is important to understand because if they can keep the money pit afloat they will successfully eliminate human drivers.
At that point what do you think is going to happen?
Either one of two things:
- Artificial Intelligence
Apple is getting into car technology because its artificial intelligence is already mapped onto a large part of our lives. It's also why many investors call Tesla a SOFTWARE company, not a car company. Eventually, one of the big tech giants will buy out Uber, or it will become a part of their already existing product.
Instead of human drivers, we’ll have an artificial hive mind driving us around. Selah!
Crypto, on the other hand, could usher in a new ride-sharing revolution through decentralized applications. Drivers would essentially own and operate the application taking in the lion’s share of the profits.
Initial startup capital could come from some kind of DAO (Decentralized Autonomous Organization) that lets people invest in the platform and receive dividends. The big tech middleman would be squeezed out of that equation and rival Uber as a company.
In fact, a crypto company called Teleport is already developing an app like this:
“By turning ride-sharing into a protocol, Teleport is building what we couldn’t build at Uber in 2010, and what Uber should be building today,” Ryan McKillen, the first software engineer at Uber who also participated in Teleport’s seed funding, said in a statement. “Riders and drivers will migrate from centralized middlemen to an open economy with aligned economic incentives.”
Maybe we won’t need AI for self-actualizing and propagating technology. Maybe all we need is a complex enough network of smart contracts and oracles.
Either way: The future will be increasingly Centralized or Decentralized.
“In my opinion, there is no middle ground with Uber today, given its financial and operational situation and the broader economic environment; it is either headed to zero or may double or triple in value.”
— Harrison Schwartz, Seeking Alpha Reporter
In many ways, Uber has the same problems as FTX, the crypto Ponzi scheme that just collapsed like a house of cards.
- Their cash flow is constantly under pressure
- They’re levered up in volatile technology with no precise timeline for real-world use
- They rely on the success of an ever-evolving competitive landscape and political environment
- And their future depends on workers and customers that are increasingly distrustful of the company.
Right now Uber has a 56% of bankruptcy according to its Altman Z Score and Piotroski F Score, two formulas used to determine the financial health of a company.
So, Uber either solves these problems and becomes the next big tech giant, or they’ll be assimilated into another player’s product lineup, or worse — completely collapse due to insolvency. The future is uncertain; buckle up for a wild ride.
Join 2500+ people on my Substack for a copy of my new eBook “Gold2.0.”
The title was taken by independent documentarian Moon over at YouTube. I don’t agree with many of his points but go check it out!
Ever since I was a child it was my dream to become a financial advisor. Unfortunately, it never came true. Therefore I am not a financial advisor and you should do your own research and not just listen to random people on the internet. Nothing contained in this publication should be construed as investment advice.
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