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Uber's $10B Wrecking Ball

by Roger Lanctot | Mar 20, 2020

As the world wrestles with the consequences of a novel coronavirus, COVID-19, running wild laying waste to health care systems, communities, and economies, it is worth considering the transportation industry's very own viral progeny: Uber. Uber's itinerant employment proposition has introduced rape, murder, sexual assault, and suicide to the business of moving people. Tragically it has done so while leaving miles of smiles in its wake thanks to artificially subsidized pricing.

Even the juggernaut known as Uber, though, has been forced to come to terms with the impact of COVID-19 as its already declining stock price started following an even steeper negative trajectory in recent weeks. To counter this movement, CEO Dara Khosrowshahi conducted a Webcast with financial analysts yesterday where he touted, among other things, the company's $10B cash trove and limited debt exposure.

Strategy Analytics is publishing an in-depth analysis of the data and insights shared on the call which included an extensive question and answer session with analysts, but, for me, the awareness of the magnitude of Uber's cash on hand represents a sobering consideration particularly for Uber's competitors both within and beyond the ride hailing industry. To that point, the overt and underlying message embedded in the Khosrowshahi call was that Uber was in position to survive even the deadliest and most prolonged economic downturn - including one that might decimate less well-heeled competitors and might take down legacy players from the rental car and taxi industries - to say nothing of robbing public transportation operators of passengers.

There is no doubt that the likes of Avis, Hertz, Sixt and other rental car companies are gaping at vast revenue holes torn through their financial positions. Booking shortfalls of 40% or more have sent their stocks plummeting dependent, as they are, on airport rentals for the lion's share of their transactions.

Like other rental car companies around the world, Avis and Hertz have tried to make peace or somehow come to terms with Uber and its arch-rival Lyft by renting cars to their respective drivers, but neither Avis nor Hertz have defined a path toward offering their own ad hoc customer transportation solutions.

Meanwhile, Uber is free to slash and smash its way through both the taxi and rental car industries with its heavily subsidized ad hoc, app-driven transportation solution flouting regulatory authority, under-compensating drivers, and putting both drivers and passengers at risk in cars that it does not own with drivers that it does not train or oversee. At the same time, the company trumpets its intentions to put an end to individual car ownership itself.

Can and should Uber be treated like the virus that it is? Should we trace back the source of our original infection - and by "we" I mean both drivers and passengers. How do we shelter in place to put an end to Uber?

Experts have shown that the Uber business model is fueled by a kind of endorphin-driven mania among its drivers who feel empowered through a delusional sense of self-employment. Working for Uber will somehow make them free.

When we have Uber and taxis both available to choose from we feel confident in making our transportation choices. If our Uber driver cancels our pickup request, or no driver responds, we can default to the taxi rank. But what if, in some perhaps not too distant future, the day arrives when the taxis are no longer available? What happens when Uber IS the taxi provider?

Uber's $10B bankroll imparts a sense of invulnerability sufficient that by the end of the Webcast, Thursday, the company's stock spiked upward 30%. But we've seen this play before. A company like Huawei or Google enters a market with a deeply discounted product or service. Drives out the competition. Then jacks up the price.

Saudi Arabia is doing it today by pumping oil and driving down prices in order to drive out U.S. shail oil producers and the Russians. It's an old game and we are all getting played.

With $10B in the bank we should all get comfortable with Uber being around for a long time to come. While Avis and Hertz have headed to Washington with hat in hand seeking help from Congress to survive the COVID-19 crisis, it will be interesting to see if Uber, too, puts its hand out - particularly after proudly touting its cash hoard. If Uber is as flush as it would have us believe perhaps the company should shift to the end of the bailout line. The last thing the transportation industry needs is a bailout for its own wrecking ball.

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