Uber Finally Focuses on Driving Toward Profits

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• SIX urgent forecasts for 2020 …

• FOUR big megatrends that will shape the next ten years …

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One company looking to turn over a new leaf in the new decade is Uber (UBER). It is the ultimate love-hate business. Patrons love the utility of transportation on demand yet hate the business practices and the persistent tone-deafness of corporate leadership.

It’s frustrating to see one company get so much right and so much wrong all at the same time.

But change is in the air. The relatively new CEO Dara Khosrowshahi is getting the company to focus. He’s working to sell its unprofitable food delivery business in India, according to a Tuesday story in the New York Times. He wants to prove to investors that the company can turn a profit.

He’s onto something. Investors should pay attention.

It’s easy to dismiss Uber as an unprofitable, on-demand taxicab business. The transportation part of the enterprise is the most visible, after all. It’s also the part people mostly love because it’s reliable and convenient. Tap an icon on your smartphone and a driver shows up moments later. There is no need to worry about cash or even directions. It’s all there in the mobile app.

The genius and execution of that simple idea made Uber the most valuable start-up ever.

When investment bankers began pitching an IPO in 2018, the Wall Street Journal noted many were throwing around valuations north of $120 billion. That astonishing figure would have made the unprofitable San Francisco firm worth more than the combined values of Ford (F), General Motors (GM) and Fiat Chrysler (FCAU).

Optimism soon faded. By the time bankers began hawking shares to institutional investors, the IPO ask had slipped to $82 billion. Today the market capitalization has flat-lined at $51.2 billion and the old CEO, Travis Kalanick, is out.

Related post: ‘Ghost Kitchens’ Haunt the Food Delivery Business

In November, Uber posted a third-quarter loss of $1.2 billion. As bad as that seems it is a big improvement over the spectacular $5.2 billion loss reported in August.

It also detracts from the very public spat over driver classification in California, and a decision in September to layoff 435 product managers and engineers.

The promise of Uber has always been scale. The company is burning through cash because its building a reliable software-based dispatch system for the entire world, complete with mapping, logistics and a robust payment infrastructure.

A platform of that magnitude could be a launchpad for many other ventures.

This is the pitch CTO Thuan Pham made during the Rise technology conference in March. He talked about allowing third-party developers to build applications on top of Uber in much the same way software is written to run on Amazon.com (AMZN)’s AWS, Microsoft (MSFT)’s Azure and Alphabet (GOOGL)’s Google Cloud.

Related post: Microsoft, Apple Platforms Prove Too Big for Underdog Competition

This transformation would make Uber a best-in-class platform for transportation logistics and payments.

Ultimately, this move would negate the need for ancillary businesses like food delivery. This is why the Times story about off loading Uber Eats India is so important. The company has struggled mightily to succeed in India, an extremely competitive market. Selling its operations there would stop the bleeding.

And it would be the first real step toward Uber as a for-hire logistics and payment platform. As the gatekeeper to one of the world’s largest transportation networks, these software service fees could be substantial, and extremely profitable. It could also set up other nodes.

The Verge reported in October that Uber is testing a staffing business — called Uber Works — in partnership with TrueBlue, one of the largest industrial employment companies in the United States. Uber Works is a logical extension of the platform. Workers get the flexibility to work when they want, mostly where they want. Employers get pre-screened employees, without the hassle of paying expensive benefits.

The basic idea turns workers into a digital service, much like transportation, logistics and payments. For its efforts, Uber will get a fee.

Related post: The Killer App of the Gig Economy

Meanwhile, the traditional ride-hailing business continues to grow. During the second quarter, gross bookings grew 29% year-over-year to $16.5 billion. Revenues attributable to Uber amounted to $3.8 billion. Khosrowshahi claims that business will be EBITDA profitable for the full year of 2021.

Shares trade at 3.9x sales. That multiple is inexpensive given the potential business model change. For the first time since its public debut, stock market investors should pay attention. Shares are headed higher.

Best wishes,

Jon D. Markman