Uber (UBER) has been one of the greatest influencers of American culture in the last 10 years, but that doesn’t mean they laugh all the way to the bank - hardly so.
The unit economics have never made sense as they hopped from the first cash-burn taxi service to another cash-burn food delivery service.
As many know, profits matter in this brave new world of tech investing simply because zombie companies cannot roll over debt because of higher interest rates.
Just in the nick of time, Uber Chief Executive Dara Khosrowshahi seems to have saved the day.
He has a grand solution to finally get Uber to profitability.
Most know the largest expense to doing business is often wages.
Anyone who has run a real business, essentially the inverse of a German politician, understands that if there was some way and somehow to reduce the wage bill or other large expenses, profits would go up extraordinarily.
For Uber, the highest expense since its inception has been the taxi or food delivery guy driving around.
Now, Uber is working with automakers to design lower-cost electric vehicles tailored for its ride-hailing and delivery businesses, part of its effort to “electrify” or de-emphasize the drag of running a fleet with a flock of gas guzzlers.
Khosrowshahi said the company is working with manufacturers on vehicles optimized for city use, ferrying passengers and deliveries.
For ride-sharing, that includes cars with lower top speeds and with seating areas where passengers can face each other.
I’m surprised it took Uber management so long to do this but better late than never.
Uber is considering smaller vehicles with two or three wheels and trunk space.
Such vehicles can get through traffic easier and have a much smaller footprint, both in terms of environmental but also traffic footprint than, let’s say, a car to go deliver groceries.
The announcement comes as Uber is working to convert the fleet of vehicles its drivers use to electric by 2030 in many parts of the developed world, and in some places like London by 2025.
Truth be told, they have made headway in profitability reducing the annual cash burn in the last three years from $8 billion to $6 billion and then just last year only $500 million of losses.
Uber needs a little more juice to finally break even and I do believe this initiative will do the trick.
However, the crystal clear next step is the path laid out recently by the behemoths like Facebook, Microsoft, and Google.
Uber should fire 75% of the engineering team and 100% of the sales team.
The brand largely sells itself and the brand is ubiquitous in every corner of the globe.
If Uber management goes for this low-hanging fruit, I easily see a double in this stock from today’s $25.
The lack of profitability has always been that one impossible nut to crack for Uber management and now that they are so close, why not close the deal?
The stock has been on a tear for the first 20 days of the year going from $25 to $30 today.
Shares are up another 4% today at the time of this writing and I believe readers need to buy the dip on this ride hailing stock as battered down tech stocks come back into play.
