Is Uber a valuable company – what does it owe its investors, drivers, and customers? That’s one of the questions RSG contributor John Ince tries to tackle in this week’s round up. In addition to these Uber questions, should the “gig economy” be more responsive to workers’ rights in terms of a minimum wage, holiday pay, and more? A UK government review tries to answer that question this week as well.
So where does Uber’s value come from anyway? [The Drum]
Sum and Substance: At an estimated $62.5bn, Uber has the dubious distinction of being the world’s most highly valued private technology business, as well as its most heavily loss-making.
… Last year the company recorded losses of $2.8bn, based on net revenues of $6.5bn and is burning through cash faster than Johnny Depp in a pet shop. So where does the value come from? Uber is notoriously “asset light” so there can’t be much tangible value in the company. While most companies are happy to present their employees as their “most valuable asset”, this would be an unlikely claim from a business that just ditched its founder as CEO and is noted for an infamously toxic (sexist) working culture and patently unsustainable labour-supply cost structures.
It’s possible that much of this value resides in Uber’s technology, although a recent study by CNBC and MCAM International suggests that Uber’s approach to patent protection is “nearsighted” in comparison to Lyft: “Lyft’s patents are more focused, specifically on the development of an improved rider experience. Uber’s portfolio is more vast but less likely to bring the company a specific advantage.”
Even if the two companies’ technological prowess is equal, Lyft’s relatively puny valuation – a mere $7.5bn – suggests that the value of Uber’s technology must only be a tiny proportion of its overall value, particularly given that Uber is battling an injunction from Waymo in the crucial area of driverless technology. So if the majority of Uber’s value doesn’t reside in its tangible assets, its human capital, or intellectual property, what’s left? Its brand? Is Uber’s brand worth tens of billions of dollars?
Brand Finance seems to think so. Its 2017 Global 500 list ranks Uber as the 89th most valuable brand in the world, with a value of $14.6bn (above Zara, BNP Paribas, and Costco) and an AA- brand risk rating (which suggests the brand is as strong and stable as Hyundai Group and J.P.Morgan). Larger – and potentially more conservative – brand valuation specialists seem more circumspect; both Interbrand and Milward Brown have omitted Uber from their lists of the world’s most valuable brands. …
To believe that Uber has any value – brand value or otherwise – we’d have to believe … that Uber will find a way to deliver cheap rides without subsidies so it can attract a profitable client base; and that Uber can continue to increase its fleet of cars to grow its availability. Raising prices doesn’t seem a possibility – one of the problems with undercutting incumbents is that you attract the least loyal, most price-sensitive people in the market. And if you don’t maintain your price advantage – these price-sensitive customers simply defect to a cheaper competitor. Uber isn’t building a brand loyal customer base. It’s training people to care more about price.
It’s difficult to see Uber as a strong brand. Disloyalty is baked into its business model. It’s culturally toxic. Governments and regulators seem to hate it. The public tolerates rather than embraces it. Few people outside the investment community would mourn its demise.
Nor does Uber seem likely to reach a point where economies of scale kick-in and allow it to deliver cut-price rides at a profit. Driver costs are predicted to go up rather than down as regulation catches up and driver exploitation is stamped out. The only hope for Uber’s continued existence seems to be driverless technology: driverless cars don’t sleep, strike, unionise, complain about exploitation, or allege sexual harassment.
For Uber’s brand value to be positive, this technology will need to be both cheap and rapid to develop and roll out – the weaker the brand, the more heavily future profit is discounted. It’s hard to imagine that by the time Uber has burned through its remaining cash pile (three years according to some estimates) it will have successfully implemented cheap, driverless cars. We don’t even have cheap, driverless trains.
So is Uber’s brand really worth billions? … At the moment, it’s difficult to get past the idea that a business that loses billions of dollars a year – and looks like it will continue to do so in the foreseeable future – could possibly be worth tens of billions of dollars. The brand’s utter absence of integrity and purpose seems only to exacerbate the issue. If brand value rests entirely on the optimism of a handful of sophisticated investors (whose exit plan may simply involve reaping back their billions through a vastly inflated IPO) – then another oxymoron may provide a more apt description of the type of value we’re now talking about: beggarly riches.
My Take: This is a fascinating and thought-provoking analysis that focuses attention on Uber’s balance sheet and what assets may or may not be valued on that balance sheet. In the industrial era, balance sheets were stuffed heavy with tangible assets, most notably plant and equipment. As we evolve toward the data and information economy, balance sheets tend to be more top heavy in intangible assets – intellectual property like brand, patents, copyrights and so on.
This article considers what Uber has in the way of assets and how the value of those assets might change over time. Clearly a huge part of Uber’s $62.5 billion valuation has to be considered brand – otherwise they don’t get to $62.5 billion. But what is the value of Uber’s brand? How much has that brand been damaged by the recent scandals and drama? One of the charges of the incoming CEO and CFO will be to prepare for an IPO, so early investors and employees can cash out. If you were an investor, would you buy shares of Uber’s IPO?
Uber Sees Financial Growth and Possible Waymo Settlement [Bloomberg]
Sum and Substance: Uber Technologies Inc. tried to assuage investors’ concerns Tuesday that a series of scandals were taking a toll on the business. It told them to expect improved bookings, narrower losses and a possible settlement with Alphabet Inc. that could resolve one of the company’s biggest legal hurdles.
On a conference call with investors, Uber executives said gross bookings increased more than 10 percent last quarter from the prior period, while losses continued to shrink, said people familiar with the meeting. Uber’s attorney told investors that a lawsuit over self-driving cars from Alphabet’s Waymo could be settled before a scheduled court date in October, though she said no formal agreement is in the works, said the people, who asked not to be identified because the information is private.
During the 15-minute call with backers, Uber didn’t release full financial results, saying those would be ready in the coming weeks. It was the first presentation to the privately held company’s shareholders since the resignation of Chief Executive Officer Travis Kalanick, which was forced by several of Uber’s major investors last month. “We’re fortunate to have a healthy and growing business, giving us the room to make the changes we know are needed on management and accountability, our culture and organization, and our relationship with drivers,” an Uber spokesman wrote in an email. He declined to comment on finances or plans for the Waymo suit. In an email, a spokesman for Waymo wrote: “We believe we have strong evidence to put in front of a jury about Uber’s misappropriation of Waymo’s trade secrets and look forward to trial.”
Uber is continuing to take steps to squeeze more revenue from customers and reduce its expansive losses. Late last week, the company quietly increased booking fees in the U.S. and Canada. The fee, which is designed to help Uber pay for insurance and other expenses, isn’t shared with drivers. Uber said the increase ranged from 15 cents to 50 cents per ride depending on the city. The fee accounts for about $1.50 to $3 of each fare. Tuesday’s meeting highlighted Uber’s shallow bench of leaders, which is the result of a months-long exodus from the San Francisco ride-hailing firm. The call was led by Ryan Graves, a longtime executive and board member, with participation from Angela Padilla, an associate general counsel, and Prabir Adarkar, Uber’s acting head of finance. Uber is looking to hire a CEO, general counsel and chief financial officer.
My Take: The surviving executives at Uber are trying to put the best possible spin on the current situation, highlighting a 10% increase in bookings and making some vague and semi-informative statements about narrowing losses and a possible settlement with Alphabet. Significantly, no financials were released to investors in this conference call.
One can understand why, too. With losses in the last quarter of 2016 at $991 million before interest, taxes and stock-based compensation, and Q1 2017 loss of $708 million, Uber is probably in no mood to dwell on the numbers. Uber execs have to be very careful about what they say and release these days. Investors are trigger happy, not the least bit reticent to file backward looking lawsuits alleging they were misled about vital information – broadly a matter of fraud. Those lawsuits generally come after a company is public, but any measure of dissatisfaction can spur people to legal action at any time when they’re going after a deep pocketed target.
It’s worth noting that one of the actions Uber cites as a positive development to investors – increased booking fees – sends 100% of additional revenue to Uber and nothing to drivers. It appears Uber’s execs then and now have different messages they send to different constituencies.
UK government calls for Uber, Deliveroo to provide better benefits for workers [The Verge]
Sum and Substance: A UK government review into the modern workplace has recommended a range of measures intended to help low-paid workers employed by companies like Uber and Deliveroo. The Taylor review, led by former government policy chief Matthew Taylor, says individuals working full-time in the “gig economy” should have the right to sick leave and holiday pay, and that companies should have to prove workers can earn the minimum wage by signing up to their service. If the government chooses to follow the review’s recommendations, it could have a big effect on the business practices of Silicon Valley companies. In the UK and elsewhere, companies like Uber don’t class their workers as employees, but instead refer to them as “independent contractors.” This means they don’t have the same rights as regular employees, but neither are they bound to working set hours.
THE REPORT SAYS UBER DRIVERS SHOULD BE CLASSIFIED AS ‘DEPENDENT CONTRACTORS’ – Critics have noted, though, that these individuals are often full-time employees in all but name, working regular hours without the associated benefits. The Taylor review suggests that such workers should be reclassified as “dependent contractors” and given similar rights to regular employees. It also recommends shutting a loophole in UK labor law known as the “Swedish derogation,” which allows companies to pay temporary staff less than full-time employees doing the same job. Employment in the UK is currently at a record high, but real wages are falling and currently stand below where they were before the financial crash of 2007 and 2008. The Taylor review notes that although employment is booming, many new jobs created in the UK have been of poor quality. “There are too many people at work who are treated like cogs in a machine rather than being human beings, and there are too many people who don’t see a route from their current job to progress and earn more and do better,” Matthew Taylor, the report’s author, told BBC News.
But the review has also been criticized for not going far enough, and failing to recommend concrete legislative changes. Tim Roache, head of the general trade union GMB, described the report as a “disappointing missed opportunity,” while Len McCluskey, head of the UK’s biggest union, Unite, said it had “spectacularly failed [to tackle] the scourge of insecure working in this country.” Thompsons Solicitors, a law firm that specializes in workers’ rights, called the report “feeble”.
My Take: This headline seems a bit misleading to me. A better one would be the one Bloomberg used: How to Protect Drivers Without Killing Uber. A U.K. government review proposes a reasonable compromise between gig economy business models and worker rights. The report laid the intellectual groundwork for progress but didn’t offer specific recommendations for legislative changes. Rather it offered vague ideas – good ones – like making the third categories of a “dependent contractor.” But categorizing someone a dependent contractor doesn’t really help drivers, unless it specifies what the benefits accrue to those in this new category. If the recommendations of this report were adopted, I can’t see it having much of an impact because ultimately it’s relying upon Uber’s sense of “responsible corporate governance.”
Readers, what do you think of this week’s round up? Does Uber have a strong brand, or do you think it could be overtaken by Lyft? Would you want to be classified as a “dependent contractor” or do you think Uber’s current model is fine?
-John @ RSG
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