Uber reported a $5.9 billion loss in the first quarter of 2022.
Philip Pacheco | AFP via Getty Images
In this weekly series, CNBC takes a look at the companies that made the first Disruptor 50 list 10 years later.
The creation of Uber after the 2008 financial crisis can be compared to an earlier disruptive innovation: the supermarket.
In 1930, in the early months of the Great Depression, Michael J. Cullen rented a vacant garage in Queens, New York, and built King Cullen, widely regarded as the first supermarket and an example of a “resource integration” model. This is what created the Uber ecosystem.
Like King Cullen, Uber is the result of “clever resource integration” by its founders, serial entrepreneurs Travis Kalanick and Garrett Camp.
At the time of Cullen’s innovation, none of the current major grocery chains, including Cullen’s two former employers, Kroger and A&P, had thought of doing what they were doing. But its merits were clear, and the idea caught on quickly—the textbook definition of disruptive innovation.
Unfortunately for Uber, the comparison doesn’t end there.
King Cullen’s business model proved easy to copy, and eventually the larger chains did too. Today, Kroger is America’s largest supermarket chain with a national market share of 16.1%; King Cullen remains a local chain.
Since the founding of Uber, many competitors have emerged in today’s gig economy, be they disruptive companies like Lyft in ride-hailing, DoorDash in groceries, or Convoy in freight and trucking.
Over the past decade, Uber has faced both internal and external obstacles. These include allegations of sexual harassment, multiple shootings related to workplace culture surveys, alleged dissemination of rape victim’s medical records; Plus the absurd videos and emails from Kalanick, the former CEO and co-founder. In addition, there was political pressure and conflicts with regulators; Union tensions, a lawsuit with Alphabet, huge losses, and investor infighting.
Then, in 2017, the company brought in CEO Dara Khosrowshahi, who has led Expedia since 2005 and is credited with expanding its global footprint through multiple online travel booking brands, including Expedia.com, Hotels.com, and Hotwire. That decision ended Uber’s long quest to replace Travis Kalanick, who resigned after a shareholder revolt and went down as one of Silicon Valley’s most prominent and notorious startup founders. His rise and fall at Uber became the subject of television drama, much like Theranos’ Elizabeth Holmes and WeWork’s Adam Newman.
How Uber Fared in the Post-Travis Era
By most accounts, Kalanick was insanely single when it came to Uber. But when he stepped down from the board in 2019 and sold all of his shares in the ride-hailing company, Kalanick severed his ties with the company he co-founded for good. Two years later, he was on the New York Stock Exchange during the company’s IPO, although he did not share the stage with company executives.
The company was immediately valued at over $80 billion and then fell like a stone. The experiment — listing a company with a massive valuation that its S-1 filing said had a chance it would never turn a profit — ignited massive sentiment among savvy investors and individual buyers alike. change has happened. Josh Brown of Ritholtz Wealth Management described it as “a moment.”
Of course, not even Brown could have foreseen that this moment might actually come a year later in the form of a global pandemic that is putting almost every company into survival mode.
Ride-hailing companies have struggled with supply and demand as Covid-19 took drivers off the road. Uber had to rely on incentives to bring drivers back, straining finances. This has seemed to be stabilizing in recent months, but the war in Ukraine has caused fuel prices to spike significantly. Analysts feared companies would have to spend millions hiring drivers.
Khosrowshahi said on a recent conference call, “Our need to increase the number of riders on the platform is nothing new or a surprise…we have a lot of work ahead of us, but it’s a machine that’s going on.” Investor. The company expects to proceed without “significant additional incentive investments.”
The company posted its first quarterly profit at the end of 2021, but then posted a huge loss due to investments in the first quarter of this year.
During Khosrowshahi’s tenure, the company has invested heavily in its food, beverage and convenience delivery segment through acquisitions such as liquor delivery service Drizly last February and Postmates, without acquiring grocery delivery service Grubhub. after the talks. Yesterday, Uber shares fell 4.3% on news that Amazon has agreed to take a stake in Grubhub to give Prime customers a one-year subscription to the grocery delivery service.
By focusing its acquisition efforts on the Eats segment during the pandemic, the company has been able to sustain some of its business despite the drop in travel. Investors believe this will continue to propel the stock.
Another key element going forward is the regulatory environment for the company.
To ensure things like a minimum wage and benefits, lawmakers have pushed to reclassify gig workers as full-time employees. But classifying drivers as contractors can help companies avoid the costly benefits of full-time employment, such as B. unemployment insurance.
Gig economy companies, including Uber, won a temporary victory in California in 2020 when voters passed Proposition 22 by a majority. That vote effectively exempted many gig economy companies from the state’s recently enacted Assembly Bill 5, which aimed to classify their employees as full-time employees.
But as far as the market is concerned, there’s really one big goal for Uber, and it’s become urgent: To generate “meaningful positive cash flow” for full-year 2022, which marks a first for the company. Will happen.
Khosrowshahi says Uber is on track to do so.
– CNBC David Mirror and Jessica Burztynski contributed to this story.
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