Uber Is a Money-Loser

Whether you love or hate Uber -- and there are certainly plenty of people on both sides of that argument -- it is undeniable that the popular app has struck a chord with Americans by providing a transportation service that was lacking. However, like many startups, Uber is still losing significant money. Can they make it in the long run even with a novel business model, or will that model be their eventual downfall?

As a private company, Uber holds its financial information close to the vest. Bloomberg recently reported that Uber lost $470 million on $415 million in revenue in an unspecified time frame, according to information that is being used to attract investors. Similarly, information leaked to Gawker reported a $56 million loss on $104 million in revenue in 2013 and $160 million losses on $101 million in revenue during the first half of 2014.

Revenue estimates for 2015 are mostly speculation, but Business Insider has suggested that the value may be as high as $2 billion in net revenue from their 20% share of $10 billion in bookings. Numbers recently obtained by Reuters shows 2016 expectations at around $5.2 billion on over $26 billion in worldwide bookings. If these projections come to pass, in just four years Uber income will have grown by a factor of 38.

Can Uber's losses possibly keep pace and surpass revenue as they have for years? In a word, yes.

Uber is aggressively expanding, both geographically and in the served market. They have publicly announced intentions of spending $1 billion each in China and India to grow their business. Uber has at least some operations in 60 countries and is available in over 150 cities within the U.S. In some places, Uber is effectively subsidizing drivers to gain a market share. Meanwhile, Uber has also launched a delivery business and has made noises about entering other markets that fit their infrastructure, such as rental cars.

As a final drain on resources, Uber is involved in multiple lawsuits and regulatory battles, with perhaps the most important one being a class action hearing on whether Uber drivers should be classified as employees instead of independent contractors. An unfavorable ruling could make Uber one of the world's largest employers and saddle them with unfathomable costs in benefits and other obligations.

Certainly, Uber is well capitalized. Investors continue to pour money into the company despite its current unprofitability, driving its value to $51 billion. Uber reached the same heights as Facebook, taking over the record for capitalization by a private company (and in less time than Facebook). However, at the same point in its life, Facebook was a profitable entity.

The better comparison may be Amazon. It took Amazon nine years to establish any profit, and they continue to frustrate investors by plowing income back into the business for expansion. Yet few people would argue that Amazon is in trouble long term. It remains to be seen if Uber can reach the inflection point of being profitable if it chose to do so.

Meanwhile, the Wall Street Journal has reported that Uber has allegedly sold convertible debt with attachment to a future IPO value and negotiated a $2 billion line of credit, leading to speculation that Uber will go public. With Uber's fundraising acumen, why go public? At some point, the meteoric rise has to end.

In a way, Uber is similar to Donald Trump -- brash, unapologetic, and eager to defy the status quo. As of this writing, Trump and Uber are riding high in both popularity and unpopularity. We will find out soon how it works out for Donald Trump. It may take years to discover Uber's viability, unless the courts decide it for them through regulatory restraints.

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