Uber: The Good, The Bad, and The Ugly

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Since launching in 2010, ride-sharing company Uber has revolutionized the human transportation industry. Now it is easier than ever for on-the-go users to find a lift, as Uber allows drivers to offer up their own vehicles for rides.

Download the app, and after just a few clicks, an Uber driver could be on the way to pick you up. Throw in an incredibly competitive pricing structure and it's clear as to why it didn't take long for Uber to almost completely replace traditional taxis in some of its users' lives.

Today, Uber has a valuation of over $60 billion and is one of the most talked about companies in the world. Simply put, Uber came up with a great idea, and now millions of people use it while countless companies are trying to copy it. Personally, I live in a big city and use Uber several times a week. Everyone I know does the same.

(Also Read: Will Uber Be The Hottest IPO of 2016? )

With that said, a great idea isn't all that's needed to make a company great. As the world gears up for a potential Uber IPO, it's important to know exactly what Uber is doing right and what it could be doing better. On that note, we bring you the good, the bad, and the ugly about Uber right now.

The Good

As stated above, people really like Uber. The company's customer base is growing very rapidly, and that is always a great sign. While their financials are still private, we are able to get a general sense of what Uber's books look like thanks to some leaked documents.

According to files released earlier this year by The Financial , Uber may have doubled its gross bookings in just a year. The documents show that in the first half of the 2015, Uber did about $3.63 billion worth of rides, which beat 2014's total bookings of $2.93 billion.

That growth picked up throughout the six month period, with Uber recording $1.5 billion in bookings during the first quarter but over $2.3 billion in the second quarter. After paying out its drivers, Uber brought in about $663.2 million in the first half of the year, already soaring past 2014's number of $495.3 million.

Uber has also been able to attract a lot of investors, recently bringing in $2.1 billion during a funding round in December. The company has accumulated about $9 billion in funding thus far.

Another more abstract way to judge how well Uber is doing is to check out the damage it has done to the regular taxi industry. In that regard, Medallion Financial TAXI , the leader in taxi medallion loaning, has been forced to relax its dependency on the cab industry thanks to Uber.

In its latest earnings report, Medallion reported an increase in its consumer lending portfolio. The company's lending portfolio is now just 51% taxi loans, compared to 59% last year. Medallion blames the increase in consumer lending on taxi medallion "decreases in the New York and Chicago markets."

The Bad

By now, we've probably all heard of Uber's legal troubles. From the disgruntled taxi industry to unhappy customers, Uber faces a stack of lawsuits. In fact, the company has about 50 federal lawsuits pending at the moment.

In a way, these legal battles were to be expected. The "sharing economy" is still in its infancy and the courts will have to figure out exactly what to do with it. Regardless, I'm not sure any of these cases have the potential to be the "Uber killer" just yet.

Still, Uber's investors have to be slightly concerned with the amount of money that the company is losing right now. While it is not at all surprising for an up-and-coming company like Uber to still be in the red, very few companies can sustain the monetary bleeding that Uber currently has.

Going back to the leaked financials, we see that Uber's revenue wasn't the only thing growing in 2015; its costs were too. For example, Uber spent just $159.9 million on Operations and Support in 2014. Halfway through 2015, that number was already $159.1 million.

Similarly, Promotions and Price Cuts spending was about $57.3 million in 2014 versus $72 million in the first six months of 2015. Uber's biggest expenditure, Sales and Marketing, cost about $264 million in 2014 but had already exceeded $295 million halfway through 2015. In fact, that number nearly doubled from the first quarter ($98.2 million) to the second quarter ($198.8 million) last year.

Overall, Uber lost about $987 million in the first half of 2015. If that pace continued, the company probably lost at least $2 billion during the full year. Uber simply has to start cutting costs if it wants to ensure a solid future, especially as it gears up for an IPO.

The Ugly

Logically, Uber's whole business plan depends entirely on people driving for them. It's a very simple process, and as long as you are over 21, can pass a criminal background check, and have a relatively new car, you could become an Uber driver too.

So far, Uber's driver pool seems to be growing at a similar rate to its customer base. However, it looks like the tide could be changing, and if Uber starts struggling to attract drivers, things could get ugly.

Take a look at San Francisco, the birthplace and headquarters of Uber. As The Street points out, the rate of taxi license applications in San Francisco is now higher than it was prior to Uber's debut in 2010. This is after Uber caused license applications to drop by 50% in just two years. On top of that, research now suggests that Uber drivers don't actually make more money than their taxi-driving counterparts.

Furthermore, a study released by Uber itself shows that the company's driver retention rate is not impressive. Just one year after becoming an active Uber driver, only about 50% of users are still around.

A lack of drivers can cause serious issues for Uber and cut into its unique market share. In New York City, we are already seeing a similar effect. According to more research from The Street , there are about 20,000 registered Uber drivers in NYC. Out of that pool, an average of less than 2,000 Uber cars operated in the city center during the peak hours between 7 a.m. and 7 p.m.

To put that into better context, less than 10% of Uber drivers were active and working in New York City's business district, even in an area known as the "Exclusion Zone," where taxis are restricted access. It is not a good sign for Uber to be pulling such small numbers in a space where they have such low competition.

Bottom Line

Despite the "bad" and the "ugly," I am personally really excited to see what happens to Uber in the future. Very few companies in the history of the modern world have grown as fast, or as large, as Uber has, and its investors should be eager to see it hit Wall Street someday.

Nevertheless, it is important for everyone to realize that impressive customer growth isn't the only thing a new company needs. At some point, Uber will have to balance its books and make sure its business plan is feasible over the long-term.

As Uber figures these things out, investors should keep a close eye on the headlines for any news about one of the most interesting companies around right now.

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