Uber is now a public company, a grown-up rather than a brash, scrappy upstart. As the world’s most-valuable private startup, it received intense scrutiny and criticism for years, but the harsh glare of Wall Street attention — and Securities and Exchange Commission regulations — will mean a whole new level of pressure. The risk factors section in Uber’s initial public offering filing ran a full 50 pages. While such disclosures are part of going public, Uber went to town with frank revelations about its past toxic culture, all the times it thumbed its nose at regulators, and issues with driver criminal conduct, for instance. Here are the biggest challenges Uber and CEO Dara Khosrowshahi face. Making money: It’s almost laughable that this most basic element of business should be a challenge for a public company, but Uber has been propped up by huge amounts of venture capital so far; it loses money on each ride. It needs to show Wall Street that it can reverse this. “We have incurred significant losses since inception, including in the United States and other major markets,” Uber wrote in its disclosures. “We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.” Hubert Horan, a transportation industry expert, said it’s simple in his view. “Uber has absolutely no hope of ever making sustainable profits,” he said. “They can’t produce a service at a price the market is willing to pay. That’s not going to magically change.” Uber has two ways to make more money: cut driver rates and raise passenger fares. Both are fraught with peril as they could cause its overall market to shrink. “Will Uber and Lyft end the subsidization wars?” said Bradley Tusk, a political consultant who led many of Uber’s early battles with regulators and was paid partially in shares which have grown considerably in value. “It would improve the unit economics but prices would have to get higher and what would that do to growth?” (Unit economics refer to how much money a business makes on an individual transaction.) Experts who are bullish on Uber say that losing money by subsidizing drivers and riders was necessary to propel its rapid-fire growth and that eventually it can wean itself off those incentives. Wedbush Securities analyst Daniel Ives thinks that Uber’s top spot in U.S. ride-hailing plus other connected businesses like Uber Eats, Uber Freight, electric bikes and scooters, and autonomous vehicles will pay off. Driver relations: Drivers are the backbone of the service. Even when — or if — autonomous cars become a reality, Uber and other companies now acknowledge that they will not work in all situations, so drivers will still be needed. And robo-taxis appear years away. Many of Uber’s drivers are unhappy with their declining pay and lack of benefits, as they made vehemently clear last week with protests in cities worldwide. That discontent may only grow if Uber cuts their pay further. Driver churn is already high. If Uber pays less, more drivers could flee, and it could get harder to recruit new ones. Uber said in its disclosures to investors that failing to attract and maintain a critical mass of drivers would be an issue. “There’s a real challenge to Uber’s and Lyft’s business models, which are predicated on worker exploitation,” said William Gould, a Stanford law professor emeritus and former chairman of the National Labor Relations Board. Worker status: California has legislation pending that could result in Uber and Lyft drivers becoming employees. If AB5 passes, Uber could be on the hook for at least 30% higher labor costs here, as it would have to pay minimum wage, overtime and a raft of benefits. New York City this year passed a law guaranteeing ride-hailing drivers a minimum wage of $17.22 an hour after expenses. That “had a negative impact on our financial performance in New York City in the first quarter of 2019 and may have a similar adverse impact in the future,” Uber wrote. Other states and cities could enact similar provisions. Depending on what happens in the 2020 election, the entire country could get new laws making it harder for companies like Uber to claim their workers are independent contractors. Sen. Bernie Sanders, independent-Vt., along with Sens. Kirsten Gillibrand, D-N.Y., Kamala Harris D-Calif., Elizabeth Warren, D-Mass. and 10 other Democrats last year introduced legislation to narrow the definition of independent contractors. Grizzle estimates that making drivers employees would cost Uber $6.6 billion a year. “It would bankrupt the company,” said Scott Willis, head of research for the personal finance publisher. Even if drivers stay independent contractors, Uber may have to make some concessions, such as paying for some benefits or guaranteeing minimum wage — which would of course hurt its bottom line. Competition: In the U.S. where ride-hailing is a two-horse race, Uber seems so entrenched that many people assume its market dominance will continue. But in fact, switching ride services is easy, as was shown during the 2017 #DeleteUber campaign when riders flocked to rival Lyft. “Barriers to entry for new ride-hailing startups is very low, as Estonia-based Bolt has made clear,” Willis wrote in a report on Uber. “Any tech-obsessed kid with a good grasp of coding can start a competitor, forcing Uber to continue spending on driver and rider incentives.” Uber has had to concede major international markets, including China, Southeast Asia and Russia. It recently spent $3.1 billion to acquire Careem for a leg up in the Middle East. It faces well-capitalized local rivals in markets such as India. Geographic concentration: Despite Uber’s massive size and worldwide reach, much of its business is surprisingly concentrated, making it vulnerable to disruptions in its major markets. Almost a quarter — 24% — of its ride-hailing revenue came from “five metropolitan areas — Los Angeles, New York City, and the San Francisco Bay Area in the United States; London in the United Kingdom; and São Paulo in Brazil,” Uber wrote in its prospectus. New York already has the issue with minimum wage. San Francisco has a ballot measure coming this year that would impose a tax on rides — which if passed along to riders, could depress business. In Brazil, Didi Chuxing, which already outmuscled Uber in China, is making strong inroads. (Uber owns 15% of Didi after selling its China operations to its rival, though Chinese authorities have yet to approve the stake, Uber said in its filings.) Another Achilles’ heel is Uber’s dependence on airports, which are highly regulated and can enact new rules quickly. In 2018, Uber generated 15% of its fares from trips to or from an airport, and it expects that business to increase in the future. It wrote: “As a result of this concentration, our operating results are susceptible to existing regulations and regulatory changes.”


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