My other comment in this thread [0] is about how I think waymo has a good chance of eating all of ubers/lyfts market so I totally agree. However, I still think their current unit economics in established markets are profitable and I can see why investors are interested in the market assuming self driving cars do not work out (which i personally don't).
> By your logic, nobody would have given Theranos $1.4 billion fucking dollars without making sure their shit worked.
I thought up about this a while and I have to agree with you, they could certainly be pulling a theranos or enron especially since they are not public companies which require regular audits (that I know of but I'm not finance guy).
That being said, with more private money being invested in a company, I would assume they would do more personal auditing. Are there any VC guys that can comment?
Honestly, I don't even thing they have to be pulling an intentional fraud, although clearly given Uber's corporate ethics it wouldn't be beyond plausibility. I think they just have to be selling the dream of future profits. "Sure, unit economics aren't in the black now, because like every startup we're working to capture market share. But once things settle down and we are the dominant player we'll be able to raise prices well above costs. Then we'll be minting money like Google or Apple."
If that's their line, then extraordinary losses are just more proof of how big they'll be in the end. Transportation is a big market, so they'll have to spend big to become the dominant player. Then throw in a lot of waffle about how cars as assets are underutilized, the shift to a service model is inevitable, and robot cars are the future that Uber will also own, but with no pesky drivers to pay.
There's the legend about the Texas oilman who, wanting to distract his competitors, started a rumor that oil'd been found in hell. This worked for a bit, but eventually he heard the rumor enough times himself that he had to go check out hell for himself.
I personally wouldn't be shocked to find out Uber never ends up really working as a business. Investors are herd animals, and hate missing out on a hot deal. By your logic, nobody would have given Theranos $1.4 billion fucking dollars without making sure their shit worked. But we now know it was a fraud, and not even a very good one.
It's very hard to know if the unit economics for Uber work because there are a lot of things muddying the picture. Uber doesn't own the cars or employ the drivers, so capital costs and expenses are mostly on other people's books. Uber is getting a massive subsidy from investors, but it could also be argued that it's getting a massive subsidy from desperate and/or optimistic drivers who aren't properly valuing their cars, their time, their sanity, or their health. Uber is definitely getting a subsidy from society: they're creating large externalities in terms of pollution, congestion, and carbon emissions. And probably also in terms of short- and long-term draws on the social safety net. Over time, things tend to be properly priced, so Uber's unit economics will likely get worse. We just don't know how much worse.
And even if the unit economics end up being positive, Uber has a lot of investors who expect a return. Given that they have a very shallow moat, will they be able to throw off enough profit to satisfy shareholders without competitors coming in and undercutting them? If they're going to give the same kind of return on capital as Apple, I'd guess that will take $1-2/ride on its own. That could be quite an advantage for a scrappy competitor.