According to reports, Uber’s losses for the fiscal year 2016 are expected to increase to $3 billion as compared to $2.2 billion in the year 2012. Despite posting these huge losses, Uber’s revenue is constantly increasing due to growing confidence of investors and rapid global expansion.
How can Uber lose so much money?
Uber’s net revenue is expected to increase to $5.5 billion from $2 billion amount that it reported last year. So it will indeed come as a surprise at first that Uber can post such huge losses. However, taking a closer look at Uber’s financials can explain this anomaly.
Uber is currently in the process of expanding globally and thus is spending a splendid amount of money to lobby for licenses, sniff out the competition, recruit new drivers and much more. Even in Pakistan, Uber is arguably the cheapest option in the market. Offering such huge discounts to customers and paying the drivers in full will surely cut into the profits of Uber. Uber has also spent money defending itself in multiple lawsuits filed by drivers around employment classification and more.
In addition to this, Uber is spending a large amount of money in its Research and Development department. Self-Driving cars, flying taxis and what not. These projects are sure to take a toll on expenses and are yet to yield any financial results.
What is Uber’s end game?
Uber is nearly spending $1.55 for every dollar it makes. This strategy of spending more than what it earns is not unheard of in the tech world. Amazon has a long history of not posting any profits and yet is one of the most successful companies in the world. The success of Uber depends on the confidence of its backers. As it is still technically a startup and hasn’t gone public, it is raising most of its money by funding from different investors. So all Uber has to do is show them that it can make money, a lot of it, in the future. And this claim by Uber to make a ton of money in future is not a far fetched idea.
Self-Driving cars, what does this idea mean for Uber?
Uber is the company most invested in this idea, and rightly so. Uber’s biggest expense is paying their drivers. With self-driving cars, Uber will cut out this expense entirely and will be able to rake insane amount of profits. What this will mean for drivers who rely on Uber right now is appalling, but this idea is enough for Uber to start posting losses and still retain the trust of its investors.
So in the end, although Uber is expected to lose more than $3 billion dollars in 2016, there is still no downward trajectory in sight for the tech giant.