Will Uber (UBER) Collapse?

The recent collapse of the digital asset exchange FTX (FTT) will have many people wondering if Uber (UBER) could collapse.

To explain, Uber, like FTX, is a decentralized finance (DeFi) company. Both Uber and FTX operate platforms that move money around and sell products and services. The difference is that FTX sold digital assets (mostly cryptocurrencies) while Uber sells rides and delivery services.

In essence, Uber is a DeFi platform that moves money between riders and drivers or restaurants and drivers. FTX collapsed because people thought the platform had run out of money. Skeptics will wonder if Uber could also collapse.

Could Uber Collapse?

Uber Technologies Inc. (NYSE: UBER) is claiming a remarkable level of growth as FTX did.

For example, Stockrow estimates Uber’s revenues grew by 72.2% in the quarter ending on 30 September 2022, 105.47% in the quarter ending on 30 June 2022 and 136.10% in the quarter ending on 31 March 2022. Similarly, CNBC claims FTX’s revenues grew by 1,000% in 2021. To elaborate, CNBC estimates FTX’s revenues grew from $89 million to $1.02 billion in 2021.

Hence, Uber is growing at an incredible rate. For example, Uber’s quarterly revenues grew from $4.845 billion on 30 September 2021 to $8.343 billion on 30 September 2022. Similarly, Uber’s quarterly gross profit grew from $1.714 billion on 30 September 2021 to $2.326 billion on 30 September 2022.

Yet, Uber is not making money. For example, Uber reported a -$465 million quarterly operating loss on 30 September 2022. The quarterly operating less fell from -$572 million on 30 September 2021.

I think Uber could collapse because it is growing fast but making no money. Just like FTX, CNBC claims FTX reported a net loss of -$1.1 billion in the second quarter of 2022.

How Many Riders does Uber Have?

Uber (UBER) is one of the most popular rider share apps in the world. For example, Statista estimates 43% of Brazilian adults, 42% of Indian adults, and 29% of Australian adults used Uber between April 2021 and March 2022.

However, only 18% of US adults, 22% of British adults, 14% of Spanish adults, 10% of French adults and 3% of German adults used Uber between April 2021 and March 2022, Statista estimates.

Uber usage is growing. The number of annual Uber users grew from 11 million in 2015 to 111 million in 2019, Business of Apps estimates. The number of annual Ubers fell to 93 million in 2020 and rose to 118 million in 2021.

Similarly, the number of Uber annual trips grew from 3.79 billion in 2017 to 6.9 billion in 2019, Business of Apps estimates. The number of Uber annual trips fell to 4.98 billion in 2020 and rose to 6.3 billion in 2021.

Conversely, Uber is losing market share to Lyft (LYFT). For example, Uber’s US market share fell from 85% in 2015 to 68% in 2021, Business of Apps estimates. Conversely, Lyft’s US market share grew from 8% in 2015 to 32% in 2021.

Hence, the COVID-19 pandemic hurt Uber, but it can recover. Yet the financial numbers show Uber is not generating income.

How much Cash does Uber (UBER) generate?

Uber (UBER) can generate some cash. For example, Uber reported a quarterly operating cash flow of $513 million on 30 September 2022.

The quarterly operating cash flow fell from $668 million on 30 September 2021 and rose from $488 million on 30 June 2022.

Uber can generate enormous amounts of cash. For example, it reported a $7.592 billion quarterly ending cash flow on 31 March 2022. However, the quarterly ending cash flow fell to $272 million on 30 June 2022 and $770 million 30 September 2022. There was a $3.336 billion quarterly ending cash flow on 30 September 2021.

There is cash at Uber. Uber reported $6.896 billion in cash and short-term investments on 30 September 2021. The cash and short-term investments fell to $5.458 billion on 30 September 2022.

Unfortunately, not all of that cash comes from Uber’s business. For example, Uber reported a quarterly financing cash flow of $1.502 billion on 30 September 2021. The quarterly financing cash flow fell to $131 million on 30 September 2022. Hence, Uber borrows money.

Yet, Uber also invests money. There was a quarterly investing cash flow of $321 million on 30 September 2022 Uber also reported a quarterly operating cash flow of $668 million on 30 September 2021.

Can Uber Make Money?

Unfortunately, much of Uber’s money comes from investments. For example, Uber received $20.9 billion in cumulative funding between 2011 and 2019, Business of Apps estimates. Uber’s cumulative grew from $60 million in 2011 to $20.9 billion in 2019.

Hence, much of Uber’s income could come from investors. Thus, like FTX, Uber could rely on outside investment. If the investment dries up, Uber (UBER) could collapse.

One reason Uber could collapse is a driver shortage. In 2015, Uber management claimed the number of Uber driver was doubling every year. However, in 2018, Uber only had 750,000 US drivers, The Ride Share Guy estimates. Hence, the number of Uber drivers was not doubling.

Could Labor Shortages Hurt Uber?

Instead, The Ride Share Guy’s Melissa Berry thinks Uber’s US driver force peaked at around one million drivers in 2020. Berry estimates there are between four and five million Uber drivers worldwide.

Hence, the labor shortage is hurting Uber. The US faces a labor shortage because of the Great Resignation. To explain, more workers are quitting their jobs because of growing opportunities in other fields.

For example, 6.1% of US leisure and hospitality workers quit their jobs in August 2022, The US Chamber of Commerce estimates. In contrast, around 4.5% of US leisure and hospitality workers quit in October 2021.

I consider Uber a leisure and hospitality company. To explain, many Uber trips involve leisure activities. For example, driving drinkers home from the bar. Uber also provides a hospitality service for people who need rides.

Hence, 6.1% of Uber’s U.S. labor force could quit, which could hurt the company. That could hurt Uber because the US Chamber of Commerce estimates 60% of leisure and hospitality job openings were unfilled in September 2022.

Thus, Uber (UBER) could have nobody to drive the cars, which is a threat to its existence.

Uber (UBER) is losing value

Uber (UBER) lost significant value over the past year. For example, Uber’s total assets fell from $38.884 billion on 30 September 2021 to $31.112 billion on 30 September 2022.

Thus, Uber’s total assets fell by $7.772 billion in a year. Uber has lost enormous value just as FTX did. Skeptics will wonder if the Uber collapse has begun.

Mr. Market is among those critics. For example, he paid $38.81 for Uber on 8 December 2021, and $27.03 for Uber on 12 December 2022. Uber has lost share value and assets, yet it still has $5.458 billion in cash and short-term investments.

Hence, I recommend investors avoid Uber because it could collapse. However, Uber still has some value.

My suspicion is that Uber will collapse but somebody will buy it and preserve it. Perhaps Alphabet (GOOG) or Berkshire Hathaway (BRK.B). Somebody will acquire Uber because they can make money from it. However, I don’t think investors will make money from Uber.