Ride hailing service Uber made public details about its fast growing and massively loss-making business on Thursday, as it gets ready to become a public company and warned it may never “achieve profitability.”
The 10-year-old company that has transformed the taxi industry will become the latest Silicon Valley “unicorn” – a private company worth over $1bn – to test the stock markets appetite for loss-making tech companies. It is set to be the largest initial public offering (IPO) of the year.
In a filing with the Securities and Exchange Commission (SEC), Uber reported 2018 revenues of $11.27bn for 2018 and a loss of $1.85bn.
The company is reportedly aiming for a valuation of close to $100bn – more than the combined value of General Motors and Ford. But at $100bn Uber would still be worth less than the $120bn estimated value its bankers had attached to the company last year.
But the company warned: “We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.”
It also issued a series of warnings about potential issues ahead.
In its drive to become one of the world’s biggest transport companies Uber has run afoul of regulators across the world, is involved in numerous lawsuits related to attacks on passengers, has angered drivers by cutting wages and been wracked by internal dissent.
The SEC filing makes clear that all these issues could harm Uber as a public company.
Uber warned that maintaining its brand and reputation is “critical to our business prospects” and that failure to address the negative publicity it has received “ critical to our business prospects.”
The company acknowledged that Uber’s hard charging work culture had “created operational, compliance, and cultural challenges and our efforts to address these challenges may not be successful.”
Ride share drivers are lobbying and organizing to be recognised as employees instead of independent contractors, a move that, if successful, Uber said would also adversely affect its business.
“Uber’s legal issues are unusual, even extraordinary, and some are endemic to the operations,” said Carl Tobias, a corporate governance expert at University of Richmond.
“The company has been compromised by corporate governance issues that appear to have been settled, though that not entirely clear, but its labor issues are very difficult to address and could be around for a longtime in the US and everywhere else.”
Uber is entering a stock market that is showing signs of tiring with loss-making unicorns. Lyft, Uber’s smaller rival, went public two weeks ago and has struggled to maintain its initial valuation. Its stock was initially priced at $72, but now stands at around $60.
Uber’s share sale is expected later this month, and the company’s executives are embarking on an investor roadshow designed to tempt institutional investors to buy into the company.
Uber is a more complex and unpredictable prospect for investors. The company is burning cash as it fights to grow its market share and to expand into new businesses, including self-driving vehicles and deliveries.
Its losses fell 15% last year, but Uber’s growth also slowed toward the end of 2018 to 25% year over year, an impressive figure, but less than the 38% for the third quarter and only about half the rate of six months prior, according to Bloomberg.
While the company, like Amazon and other tech giants that have gone on to be big money makers, continues to emphasize growth over profitability, that may not reassure investors who have recently been punishing loss-making tech companies.
To boost investor confidence, Uber is spending about $1bn this year on food delivery, freight transport, electric bikes and self-driving cars, capital intensive moves designed to position the company as a broad platform for all-manner of transportation but come with no guarantee of long-term profitability.
Uber’s offering is complex for other reasons, too. While Uber’s CEO, Dara Khosrowshahi, has worked hard to convince investors and the public that the company’s boorish, male-dominated culture has changed, a cloud of scandal still hangs over the company.
Those include a series of sexual harassment allegations, overseas bribery, a data breach that was concealed from regulators and the use of illicit software to evade authorities. The company has also clashed with drivers who have accused the company of driving down their wages to grow its business.
To date, the company has paid out around $10m to settle pay discrimination claims, including $1.9m earmarked for harassment allegations, after settling complaints brought by women who said they were raped or assaulted by Uber drivers
In March, Uber agreed to pay $20m to settle a long-running fight with drivers in California and Massachusetts who were pushing to be considered employees. In Germany, Uber was briefly forced to stop operating after regulators found it was operating an illegal taxi service.
In addition, Uber has been at the centre of at least five US Department of Justice investigations, including violations of the Foreign Corrupt Practices Act, using software to evade regulators and spying on competitors.