Summary List Placement
When I set out to write a book about Uber in 2016, what most impressed me about the company’s story was that it was a direct outgrowth of Apple’s App Store.
Founded in 2009, the year after the launch of the App Store, Uber turned an iPhone into an automated taxi dispatch service by matching a GPS chip with a credit card payment system. This observation by Uber inventor Garrett Camp represented true innovation.
More than a decade and a pandemic later, and under professional management that bears little resemblance to Uber’s early days, innovative isn’t a word that comes immediately to mind. And that’s more than likely a good thing.
Gone are the literal and figurative flights of fancy that defined Uber’s various dreams. Its flying taxi business is part of soon-to-be-SPACed Joby Aviation. Aurora Innovation owns Uber’s expensively and painfully nurtured self-driving car operation. Uber paid Lime to offload its scooter and e-bike business. Uber even de-risked its fledgling freight forwarding business by taking a $500 million investment last year from a private-equity fund.
What’s left is a mostly global ride-hailing business that was severely socked by the virus, and a food delivery arm that became an unexpected lockdown darling. (The latter business, which a year ago predominantly was Uber Eats, now includes Postmates and soon will add wine, beer, and booze peddler Drizly.) Uber also has emerged as a shrewd investor, counting lucrative investments in the various players that vanquished it in overseas markets — from Didi in China to Grab in Southeast Asia to Zomato in India — as well as stakes in the moonshot vehicles that took over its own science projects.
At $100 billion in value, investors already are betting on the recovery of Uber’s people delivery business and the here-to-stay quality of its food delivery operation. That’s even though the company lost nearly $7 billion last year and saw its cash reserves drop by more than $4 billion.
What’s impressive is that Uber made the most of its pandemic. It lowered annual expenses by $5.5 billion, partly by parting ways with a quarter of its staff. (On sales of $11.1 billion, down 15% from the previous year, that’s a significant savings.) The core rides business, though dipping from 82% to 54% of total sales, is now profitable, at least by Uber’s “adjusted EBITDA” metric. And perhaps most encouragingly, for shareholders if not for drivers, both of Uber’s key “take rates,” the portion it keeps of what customers pay for a ride or a delivery, rose. The rides take rate jumped 1.4 percentage points from 2019, to reach 22.9% of fares, largely from decreased driver incentives. And the delivery take rate leapt from 9.7% to 12.9% for same reason as well as “an overall improvement in basket sizes.”
As for what comes next, it feels like it could go either way. Uber has beaten back for now an attempt to classify its drivers as employees in California but continues to face regulatory risk elsewhere, including Britain. Competition is fierce, particularly in food delivery, which won’t continue its robust growth rates as the world begins to dine out again. Even the uncertainty of where people will work is a tough call for Uber: More homebodies equal less ride-hailing. Eventually, though, driverless vehicles on Uber’s network, even those made by other companies, will dramatically lower Uber’s costs. If Uber can deliver more things in more situations its future could be secured. And can you imagine if Uber was facing the realities of a post-covid market without having made the changes and reforms to its business?
Uber CEO Dara Khosrowshahi has a tantalizing incentive to make Uber as buttoned up financially as possible. According to a deal he signed when he became CEO in 2017, he stands to receive shares worth more than $100 million if Uber can keep its market capitalization above $120 billion for three consecutive months. A year ago that target looked preposterously out of reach. Today, depending on the global economic recovery from Covid-19, not so much.
Uber’s edgy, world-domination days are behind it. Financial stability might yet turn out to be a better look.
Updates and ruminations
There was a delightful nugget in a long New York Times piece last month about a bill given to a North Dakota legislator to regulate how payments occur within online app stores, primarily those run by Apple and Google. The patient reader learned, deep in the article, that a lobbyist for the Coalition for App Fairness and Epic Games wrote the bill, which ultimately failed in the face of heavy opposition from the tech giants. That coalition, as I wrote in December, is led by Epic, Spotify, and other Apple and Google antagonists. It is sly and aggressive of them to be pushing their agenda in statehouses around the country. This week Arizona’s House of Representatives passed a similar bill. Yet another piece of coalition-influenced legislation is up for debate in Georgia and other states. It seems in this David- versus-Goliath fight the little guy is playing hardball rather than with a slingshot.
I was asked recently if I could think of an acquired company swallowing up its acquirer. What inspired my correspondent was Red Hat, the open-source software company IBM acquired in 2019 for $34 billion. IBM recently reported that Red Hat’s 2020 revenues grew 18%, compared with an overall 5% decline for all of IBM. Even with that shrinkage it would take a long time for Red Hat to eclipse the rest of IBM. But I do know of at least one great example, though. In 2005 name-your-price travel company Priceline bought Booking.com, the European online travel agency, for $135 million. The old Priceline product eventually shriveled, and the entire company is called Booking.com today. At last count it is worth $93 billion. I’d love to know other examples.
Adam Lashinsky is a Business Insider contributor and former executive editor at Fortune magazine, where he spent 19 years. He is the author of two books: “Inside Apple” (about Apple) and “Wild Ride” (about Uber).
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