Should-Read: Izabella Kaminska: The Taxi Unicorn’s New Clothes

Should-Read: I would say “investor naivete” is currently a larger factor than “driver naivete”. But that’s just a guess…

Izabella Kaminska: The Taxi Unicorn’s New Clothes: “[Hubert Horan:] ‘For the year ending September 2015, Uber had GAAP losses of $2 billion…

…on revenue of $1.4 billion, a negative 143% profit margin. Thus Uber’s current operations depend on $2 billion in subsidies, funded out of the $13 billion in cash its investors have provided.

Uber passengers were paying only 41% of the actual cost of their trips; Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares….

Silicon Valley elites justify the subsidies in the name of monopolistic growth expectations and the building of “eco-systems”. They believe if monopoly status is achieved, profitability will follow naturally from that point. Yet, as FT Alphaville has long maintained, there is no reason to assume Uber’s obliteration of local competition across the planet will create a sustainable business in the long term. Costs are costs…. As long as people have cheaper alternatives (public transport, legs), they will defect if the break-even price is higher than their inconvenience-tolerance threshold. The fact Silicon Valley thinks otherwise is sadly symptomatic of the emperor’s new clothes groupthink dominating the sector….

We recently spoke to one of Uber’s earliest London drivers…. To survive he had to forge a driver syndicate which collectively owns the underlying car capital… cars can be fully utilised 24 hours a day improving the return on capital…. To economise further, the drivers take turns with shifts, step-in for each other if and when they need leave and recruit temporary staff if and when they find themselves under staffed. They also mutualise the costs and the insurance. Yet, even then, he said “it’s really hard to make the economics work” and that “when Uber increased its margin from 20 per cent to 28 per cent it knocked our profitability in half”… If a quasi professional corporate structure like this can’t make ends meet within the Uber network, what hope does any single driver have? Uber is surviving on plain old worker naivete.