Uber May Lose $3 Billion this Year

Uber May Lose $3 Billion this Year

Uber may make losses of up to $3 billion for this year if its current loss-making rate remains unchanged. Earlier, The New York Times reported that the company made losses of more than $1 billion for the first half of 2016.

If the company maintains its current loss-making rate, it is highly likely that by the close of the year, it would have made more than $3 Billion losses for the year.

Observers attribute the losses of the company to various factors. Of primary importance is the current operating model of the business in which drivers take a cut of the revenue that the firm collects. This revenue-sharing model had been eating into the revenue of the company since its establishment back in 2009.

As things stand now, the company has to share its revenue with its drivers. Also, the company has been awarding its drivers various incentives in a bid to grow its supply side and get a competitive advantage in the new markets that it expands to.

Another problem that the company has been experiencing is related to China. The company made a bold step by entering the Chinese market back a few years ago. However, faced with regulatory bottlenecks and intense competition from a determined local player, Didi Chuxing, Uber had to flee the Chinese market to cut its losses.

The company sold its business to Didi Chuxing for $1 billion and acquired a 20% stake in the Chinese rival.

It appears that the move worked the magic of slowing down the losses that the company had been making during the years of its foray in China. However, it remains to be seen how the company will balance the competing needs to cut down losses on the one hand and to grow its network on the other.

Recently, the company started testing its self-driving cars on the streets of San Francisco. In a move that has angered authorities in the State of California, Uber has refused to halt its tests and seek a permit, as the authorities have been demanding. It is possible that Uber is banking on self-driving cars to cut down its losses and get to profitability within the shortest time possible.

If this is the case, observers shall be keen to watch how authorities will have to change regulations to match new realities. It will also be interesting to watch how Uber will eliminate drivers from its business model over the course of time.