Article by Hurricane Capital, @HurriCap
A few days ago I found the podcast episode “Taxi! Taxi!” from Grant’s Interest Rate Observer. The episode contains an interview with Hubert Horan about the economics of Uber, with a focus on the fundamentals of Uber’s business model and whether or not it will prove strong enough to make it possible for Uber to earn any sustainable profits going forward to support its lofty valuation.
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This interview is definitely worth listening to since it provides a lot of great insights into the fundamentals of Uber's business model and competitive capabilities. If you’d like to improve your understanding of the Uber business, check it out here.
Below, my own short transcript of the introductory parts of the interview.
Evan Lorenz: You’re work on Uber showing that most of the cost are variable, and that losses scale as revenue scales has been incredible. How did you come to your conclusion?
Hubert Horan: All I was doing was collecting numbers from other published reports, you know, and putting them into one place so you could see; “Wait a minute,” this has been unprofitable from day one and it’s still getting worse in year seven.
HH: And so, when you see a lot of the recent news reports you will now see something very in paragraph five or six, by the way you know, they lost billions of dollars last year. But you know, this is, none of this is confidential information, none of this, you know the accuracy of this has been confirmed completely. But the idea that this is a company that’s got, shall we say, problematic economics is still not of great interest to a lot of reporters.
EL: What actually made you start looking into Uber?
HH: Just having been in transportation my entire career, and on the sort of strategic business planning end of things. All of a sudden all of these stories started coming out about Uber five, whatever, years ago saying that it was the, you know, biggest most, you know, highly valuable private company in the world history. And it was going to compete and solve all the problems in urban transport and we’re going to replace private car ownership at some point. And I sort of scratched my head and said; “That’s interesting, wonder how they did that?” And everything that was being claimed in all of these articles completely contradicted everything that I and anyone else had known about the economics of transportation. And digging a little more, and digging a little more, and suddenly found sort of the empty core.
Hubert Horan has written a few articles on the subject of Uber worth checking out:
- Can Uber Ever Deliver? Part One – Understanding Uber’s Bleak Operating Economics
- Can Uber Ever Deliver? Part Two: Understanding Uber’s Uncompetitive Costs
- Can Uber Ever Deliver? Part Three: Understanding False Claims About Uber’s Innovation and Competitive Advantages
- Can Uber Ever Deliver? Part Four: Understanding That Unregulated Monopoly Was Always Uber’s Central Objective
- Can Uber Ever Deliver? Part Five: Addressing Reader Comments and Questions
- Can Uber Ever Deliver? Part Six: Latest Data Confirms Bleak P&L Performance While Stephen Levitt Makes Indefensible Consumer Welfare Claims
- Can Uber Ever Deliver? Part Seven: Uber’s “Narrative” and The Vox and Stratechery Critiques of Naked Capitalism’s Uber Series – Defending Uber Requires Ignoring Industry Economics
- Can Uber Ever Deliver? Part Eight: Brad Stone’s Uber Book “The Upstarts”– PR/Propaganda Masquerading as Journalism
- Can Uber Ever Deliver? Part Nine: The 1990s Koch Funded Propaganda Program That is Uber’s True Origin Story
Disclosure: I am not receiving any compensation for any of the links provided. I have no business relationship with any company or individual mentioned in this article.