Thread by @doctorow

Uber just released its Q2-2022 numbers and trumpeted that it had finally achieved cash-flow positivity - and it only took 13 years and $32 billion in losses! So has Uber finally turned a corner? Will the company finally attain profitability and repay those billions?

Nope. 1/

If you'd like an essay-formatted version of this thread to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

pluralistic.net/2022/08/05/a-l… 2/

The best analyst of Uber's financial disclosures - as always - is Hubert Horan, a transport analyst who has made a second career out of debullshitifying Uber's balance-sheet deceptions. 3/

Horan consistently proves that the company is a #bezzle ("the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it").

horanaviation.com/publications-u… 4/

Every bezzle ends. Uber's days are, therefore, numbered. But Uber is a bezzle, and so long as new suckers can be found to buy up the company's stock, its existing investors can cash out and run for the hills in advance of the collapse. 5/

Uber management devotes substantial energy to polishing turds, bringing a deceptive gleam to each quarter's results to lure in new money.

Last quarter, Uber trumpeted its first profitable quarter.

They lied. 6/

In February, Horan did an especially fantastic job dissecting Uber's lies revealing the accounting tricks behind Uber's Q1 profitability. The main trick was this: Uber had been forced to sell off unprofitable overseas divisions in China, Russia and Southeast Asia. 7/

The company had spent billions trying to enter these markets...and failed.

pluralistic.net/2022/02/11/bez…

The buyers for these divisions paid back a fraction of Uber's squanderings. Worse, the buyers - Uber copycats that were *also* losing money - didn't pay Uber in cash. 8/

Rather, they paid in their illiquid, doomed stock, which they had assigned sky-high valuations to, borrowing a leaf from Uber's own ledger-books. 9/

So Uber sold off unprofitable divisions, writing off billions. It swapped these divisions for junk shares in doomed companies whose own accounts were works of absolute fiction. 10/

It claimed those junk shares were worth vast fortunes, called them an "investment," and declared that it had turned a profit. *That* was the secret to Uber's Q1/22 profits. 11/

Even if you accept Uber's bizarre valuations of these companies, this maneuver should not send you out to buy Uber stock. 12/

After all, if the only way Uber can turn a profit is to sell off overseas divisions and exit major markets, the company won't be "profitable" for very long. 13/

Claiming to have turned a profit by selling off a third of the company is like claiming to have saved yourself from starvation by eating both your legs. What are you going to eat *tomorrow*? 14/

Which takes us neatly to Q2-2022 (and H1-2022), where, once again, Uber is claiming to have attained profitability. How have they managed this incredible trick? 15/

Is the company finally going to deliver on its $32b promise of losing money on every ride but making it up in volume?

Nope. 16/

Horan's latest analysis, summed up in a single line: "Uber has completely abandoned its original, failed corporate strategy, and has reverted to a lousier version of what traditional taxis had been doing for years."

nakedcapitalism.com/2022/08/hubert… 17/

Anyone who's taken an Uber since the lockdowns lifted knows that the company's prices have skyrocketed. What you may not know (unless you drive for Uber) is that the company has also slashed driver pay over that same period. 18/

Over the past year, Uber's share of each fare climbed from 18% to 28%, a 66% increase in the shareholders' claim over the fruits of Uber drivers' labor.

This is a big deal! In Q2 alone, Uber transferred $2.8b from its drivers to its shareholders. 19/

If the company can keep that up, it will make its shareholders $11b richer (and its drivers $11b poorer) in 2022.

But how long can the company sustain this practice? 20/

After all, Uber drivers are living through the Great Resignation, the tightest labor market in a generation, with businesses of all kinds desperate to lure them out of their cars. 21/

Hell, Uber drivers can just switch to driving *taxis* and get a raise (many Uber drivers are cab drivers who switched when Uber's $32b investor cash firehose funded predatory low prices and driver subsidies). 22/

Just as Uber must use unsustainable tricks to keep investors from bailing on an unprofitable enterprise, the company needs tricks to keep drivers behind the wheel even as it steals their wages. The latest trick? 23/

Letting drivers see riders' locations and drop-offs before they accept a job.

Now, this is absolutely a good thing for drivers. 24/

The lie that Uber drivers are "independent contractors" was always tissue-thinm but never so much as when the company dictated that its "independent contractors" couldn't know what jobs they were saying yes to, and how much those jobs would pay, before agreeing to them. 25/

But for Uber to live up to its own mythology, it *had* to lie to its drivers. At its core, the Uber myth was that it would replace cabs with cars that would make runs to unprofitable exurbs that no driver would freely choose to service (while charging below-cost rates). 26/

Uber drivers were never going to freely choose to make runs to outlying areas and then "deadhead" back to the center of town, earning nothing as they made their way back to the place where their next fare was waiting. 27/

The only way to get drivers to make these runs was through coercion: first, hide where the next job was until the driver accepted it; next, penalize drivers who cancelled unprofitable jobs after accepting them. 28/

When Uber announced that it would finally let its "independent" drivers know what jobs they were saying yes to in advance of acceptance, it trumpeted this as a benefit to riders, because it would lead to "fewer cancelled rides." 29/

What it failed to mention was that this was because it would lead to *fewer accepted rides*. 30/

That is, rather than having to wait longer because drivers tapped "accept," realized they'd lose money on your business, and tapped "cancel," you would now wait longer because drivers just *didn't accept your run.* 31/

Thus, Horan's conclusion that "Today, Uber is offering much worse service at much higher prices than the traditional taxi industry that it had 'disrupted.' 32/

"Traditional taxis were unpopular because the only way they could keep fare revenues and costs aligned was to limit service to the densest, highest demand neighborhoods (maximizing revenue utilization and avoiding empty backhauls) and rationing service during demand peaks... 33/

"Today, Uber offers the same poor service as traditional taxis, but must charge enormously higher fares because of its much higher cost structure."

nakedcapitalism.com/2022/08/hubert… 34/

Uber's balance-sheet shell games demand that we credulously accept its claim to gains while ignoring the costs of those gains. 35/

In service to this, the company produces exceptionally opaque accounts that do not break out specific revenue sources and costs, using coarse topline measures to make it hard to fact-check its claims. 36/

Nevertheless, Horan sleuths out some important figures. In 2019, Uber was running a negative 40% net margin (losing $0.40 for every dollar it brought in). It was spending $5.16 on the average trip, and averaging $1.89 in revenue on each trip. 37/

In the past year, Uber has increased its year-over-year revenue by 105%, and its operating expenses went up by 72%. Today, the company earns $4.39 per trip and spends $4.69 per trip, narrowing its Q2-2022 operating margin to -8.8% and its net margin to -11.4%. 38/

Hypothetically, if the company continues to raise prices and cut worker pay, it can continue to narrow the gap until it breaks even. But can Uber actually *do* that?

Nope. 39/

Take Uber's wage-bill. The company bet big on formalizing its program of worker misclassification, teaming up with Lyft and other gig-work companies to spend $225m to pass California's #Prop22, which would allow the company to abuse its drivers with impunity. 40/

But sloppy drafting errors led to the California Supreme Court striking down Prop 22 in its entirety. 41/

A similar attempt to pass a worker misclassification ballot initiative in Massachusetts also failed, not even making it to the ballot thanks to a misleading summary in the voter guide. The Massachusetts debacle cost its backers $100m.

pluralistic.net/2022/06/15/sim… 42/

The failure to formalize worker misclassification, unprecedented tight labor market, and rising support for unions, is extremely bad news for businesses whose profitability depends on workers so desperate that they would put in 16 hours days and still need food stamps. 43/

No wonder there's a coordinated effort among the capital classes to engineer a global recession:

https://twitter.com/StephanieKelton/status/1555306569943891968

44/

When it comes to customers, remember that riders have alternatives to Uber. Take Lyft, the uber-alike backed by billionaire Trump donor Peter Thiel (inexplicably, Lyft has cultivated a reputation as "the good Uber"). 45/

While Lyft follows Uber's lead in failing to break out gross customer payments, its revenue relative to volumes only grew by 12% in Q2, while Uber's grew by 66%. This means that Lyft is doing less gouging (of riders or drivers, or both) than Uber. 46/

Lyft, like Uber, is a bezzle, and like Uber, Lyft is desperate for misleading accounting figures that it can trumpet to investors to goose its share price so the original scammers and their early marks can exit, clutching bags of cash. 47/

A campaign by Lyft that aimed at Uber's spiraling prices could easily tempt Uber riders into becoming Lyft drivers (likewise, a campaign aimed at drivers promising a greater share of revenues could prompt an exodus of Uber drivers). 48/

As tech stocks (and other speculative asset classes, like crypto) crater, gamblers are desperate for a new sure thing, and both Uber and Lyft have benefitted from that. The companies' misleading Q2 figures prompted a rise in their stock prices. 49/

That rise can be entirely attributed to three magic words: "Adjusted EBITDA Profitability." Or, more specifically, *one* word: *Adjusted*. 50/

One year while I was teaching the @ViableParadise workshop, one of the other instructors handed out a piece of absolutely invaluable writing advice. James D Macdonald gave a lecture to the students on how to write about guns. 51/

Macdonald is a veteran with extensive firearms experience, and he explained how even minor technical errors in a writer's depiction of a gun would prompt floods of derision from his fellow Gun People. 52/

But, Jim explained, there is an easy fix for this. Just add the word "modified" to any gun you write into a scene. 53/

If your protagonist takes aim with a *modified* Glock 19 and accomplishes something impossible with a stock Glock 19, your gun-obsessed readers will tie themselves in imaginative knots imagining the fiendishly clever mods you meant, and credit you for your deep knowledge. 54/

"Adjusted EPITDA" is the "modified Glock 19" of balance sheets. 55/

Its subtext is, "Well, lesser companies may use generally accepted accounting practice to report their finances, but here at Uber, we know so much more than them that we have created our own, superior form of accountancy. 56/

"If you doubt its superiority, merely consider that with plain old EBIDTA, our company is hemorrhaging billions, but once we *adjust* that EBIDTA, we are raking in fortunes! Who can deny our brilliance‽‽" 57/

Just as Douglas Adams' hitchhikers carried a towel for its "immense psychological value," Uber and Lyft derive great PR value from their "adjustments" to their balance sheets. 58/

Non-hitchhikers assum that any hitchhiker with a towel "will automatically assume that he is also in possession of a toothbrush, face flannel, soap, tin of biscuits, flask, compass, map, ball of string, gnat spray, wet weather gear, space suit etc." 59/

More importantly, that non-hitchhiker "will then happily lend the hitch iker any of these or a dozen other items that the hitchhiker might accidentally have 'lost.'" 60/

Likewise, the self-styled "brilliant investors" who are mid-bezzle and still think they have the money the confidence trickster has made off with will look at that word "adjusted" and assume the managers at Uber are on a glide path to world dominance. 61/

Uber's bag of tricks is running out. Its fantasy of magic, self-driving robo-taxis is over (the company spent $2.5b to make a car that had a fatal crash every 0.25 miles, and then had to pay another company $400m to take the division off its hands):

pluralistic.net/2020/12/08/req… 62/

Same for the fantasy that it can attain profitability by throwing billions at failed overseas expansions and then make up for it by "selling" those companies to other failing businesses who claim their useless stock is worth a fortune.

nakedcapitalism.com/2022/02/hubert… 63/

Also the fantasy that all Uber needed was to jettison the rapey frat-bro who founded the company and replace him with a cultured fellow who thinks rape is bad, actually:

nytimes.com/2021/07/16/sty… 64/

But every bezzle ends. The Saudi royals - who provided much of the billions used to prop up the Uber bezzle in its first decades - cashed out with the company's IPO. 65/

The company may lure in some new suckers and delay the exodus of current bag-holders with its current fantasy of infinite price-hikes and wage theft, but that's a fantasy, too. 66/

Riders who face spiraling prices will drive their own cars, or take a bus, or take a cab, or take a Lyft. Drivers who face spiraling wage-cuts will drive a cab, or take a job elsewhere, or switch to Lyft. Uber is a bezzle, and every bezzle ends. 67/

Image:
JERRYE AND ROY KLOTZ MD (modified)
commons.wikimedia.org/wiki/File:LA_B…

CC BY-SA 3.0
creativecommons.org/licenses/by-sa… 68/