There’s an old sporting sledge, coined by a 1930s Springboks rugby forward after an unlikely win, that applies equally in business: “Look at the scoreboard!”
Andrew Skelton, CEO and Managing Director of A2B Australia, the old Cabcharge business running the 13cabs network, said as much to Uber in the AFR last week in releasing the company’s FY19 results.
A2B’s revenue for FY19 is up 7% to AU$198 million, despite a $10 million drop in taxi fares processed to $983 million. A two-day Telstra failure in November 2018 reportedly cost them $5 million in fares.
The scoreboard moment for A2B is a net profit of $11.8 million, with a final dividend of 4¢ per share for investors. The company’s annual dividend yield is 4.88%.
Last month, Uber’s second-quarter 2019 results revealed a record $5.3 billion quarterly loss.
It was the startup’s first financials as a publicly listed company. Growth slowed from Q1’s 20%, and while revenue was up 14% to US$3.17 billion, that was $190 million shy of analyst expectations.
Uber’s adjusted EBITDA loss for Q2 was US$656 million, more than double the $292 million loss in the same period 12 months earlier. The loss per share increased to $4.72. Analysts expected $3.12.
The net loss attributable to Uber Technologies Inc. for Q2 19 was US$5.326 billion (AU$7.7bn), more than five times the $878 million of 12 months earlier. The latest red ink included $3.9 billion in stock-based compensation expenses. The operating loss was $1.3bn.
When Uber listed on the NYSE in May at US$45, it set a new record for the biggest first-day loss in US IPO history after shedding 11%. Its shares currently sit around $32.50, having fallen as low as $30.70 this week.
There’s around US$2 billion shorting Uber stock, betting on further price falls.
A2B shares currently sit at AU$1.62, down from a peak of $4.49 in September 2014, nearly two years after Uber first began operating illegally in Australia. Analysts mostly have the stock as a “hold”.
No one gets left behind
As the boss of a legacy business surviving disruption, Andrew Skelton’s “look at the scoreboard” sledge was pointed:
“We sometimes smile and say perhaps we’re one of the world’s most profitable ridesharing companies.”
The A2B CEO doubted Uber would ever turn a profit, musing on investor patience.
“I don’t know how long people will keep continuing to fund their customer acquisition strategy. It’s a wall of money being thrown into our market,” Skelton told the AFR.
He also pointed to the scoreboard on A2B’s value proposition to all the company’s stakeholders amid competition from the likes of Ola, Didi and GoCatch.
“No one gets left behind in our model,” Skelton said.
Uber, Lyft and the gig economy more broadly is currently facing an existential threat to their business model from Californian regulators. The Assembly Bill 5, which looks set to pass into legislation shortly, would change drivers from independent contractors to employees, giving them a minimum wage and paid leave. In response the company has offered drivers a guaranteed US$21 an hour – but only while on a trip, which stats suggest is around 60% of the time they’re on the road as an Uber driver.
The fight over the issue has been a decade coming. The true impact on Uber in the western US state is unknown.
A 2018 Australian survey of 1,100 ridesharing drivers – 97% with Uber – conducted by the Transport Workers Union last found that, on average, drivers earned less than the minimum wage at $16 per hour – and that was before expenses such as fuel and insurance were deducted. Some 75% of drivers said the commissions charged were too high (Uber takes 25%) and 85% were dissatisfied with their earnings.
Uber disputed the findings saying that in its own surveys of its drivers, two-thirds said they’d recommend driving with Uber to friends and family.
Uber’s story is a classic startup tale of disruption and rapid scale, but it also rattles like the chains around Marley’s ghost in Charles Dickens.
Globally, Uber still has a long way to go on its social license.
Sure, it pitched itself as the funky disruption business when it landed in Australia – the slightly naughty alternative to a moribund monopoly taxi industry that deserved to be shaken up – but how it went about it appeared somewhat unscrupulous, as outlined by the ABC’s Four Corners program, The Uber Story, some of the company’s tactics were less-than-ethical.
Uber Australia tacitly acknowledged as much in a statement follow Four Corners, saying that subsequently they “have made significant changes to our leadership team, and to the fundamentals of how the company operates putting integrity at the core of everything we do.”
Nonetheless, London didn’t buy Uber’s pitch and banned it in 2017. It’s back, but heavily scrutinised and only this week came under fire for an ad campaign in the capital that contradicts the company’s own research.
The business has also, in recent years, had regulatory problems in Denmark, Bulgaria, Hungary, Morocco, Turkey, Portugal, Israel, Greece, India and Hong Kong, to name just a few, facing bans, restrictions or withdrawing from those regions.
The Australian way
They got lucky in Australia, where state governments capitulated quickly, then slugged passengers with levies to pay for ridesharing’s arrival. Other services quickly piggybacked on Uber’s regulatory success.
Now, whether you catch a taxi, Uber, Ola or other ridesharing service in NSW, the passenger cops a $1.10 (inc. GST – the federal govt gets a cut too) surcharge to pay for the state government’s $250 million compensation package to the taxi industry (itself a previously highly regulated nice l’il earner for the NSW Treasury coffers).
So that’s 250 million rides in NSW costing everyone more to let Uber have its way. The consequence was an average fare increased by 4% for more than 18 months to facilitate Uber’s “cheaper” service.
Similar compensation schemes are in place elsewhere around Australia.
Meanwhile, Uber faces a compensation class action from taxi drivers, launched in May this year, that could be worth $500 million.
Uber Australia appears to be viable. In 2018 Uber Australia Holdings made a gross profit of $785 million, but paid $8.5 million in company tax after paying $691 million in “service fees” to its parent company. Total revenue was $935 million, up more than 50% on 2017’s $595 million.
No doubt UberEats helps, but that side of the business has its own challenges and many restaurateurs are deeply unhappy with the cut Uber takes and the way the company treats them. The ACCC investigated the contracts, forcing Uber Eats to agree to changing them in an announcement in July.
Uber’s growing popularity
Roy Morgan research released last week concluded that for the first time more Australians aged 14+ used Uber (22.9%) compared with taxis (21.8%) in a three-month sample.
The most interesting thing about the data is that ridesharing appears to have created a new market, rather than cannibalising taxi users.
The proportion of Australians using taxis remained relatively steady, dropping slightly from 24.4% (4.8 million) to 21.8% (4.5 million) – 300,000 people. Meanwhile, 22.9% (4.7 million) now use ridesharing.
The Roy Morgan data suggests a user based that’s both price and tech-driven. Uber skews young: of that 4.7 million cohort, 42.6% (1 million) were aged 18-24 and 35.7% (1.3 million) of those aged 25-34. It falls to 6.6% at 65+.
Taxi usage is far more consistent across age groups, and most tellingly, the 35-49 bracket had the highest proportion of taxi usage (25.3%).
And here’s the thing – and my theory.
Taxis are the tortoise and Uber et al, the hare of that old Aesop fable. Long term, taxis will still be around. One major, adverse regulatory change and it’s a reasonable bet that the ridesharing guys will ride out of town as quickly as they rode in.
This December will mark four years since ridesharing became legal in NSW, with the new regulatory framework around what the state government now calls point to point transport beginning in November 2017.
The startup novelty is now just another part of the mix.
Back to cabs
Yes Uber has prices that theoretically make it cheaper than a taxi, but nowadays when you go to book, the app is essentially a haggle, often testing you to see how much you’re prepared to pay.
There are plenty of stories earnestly making base price comparisons of Uber and Ola v a taxi, but it’s nearly impossible to know when you are paying the base fare on a ridesharing app now.
The controversial surge price factor is now hidden – the app offers you fare cost, want it or not?
To make a reasonable assessment of value, you need to know how much your trip would normally cost.
And for more than a year I’ve been carefully making that assessment looking at Uber, Ola and taxis and experimenting with rides.
My sense is that the savings gap between an Uber/Ola and taxis has narrowed considerably in the over that time as rideshare became mainstream.
Increasingly, I look at the apps, then jump in a cab.
I catch cabs from Sydney’s CBD to my home, about 7km from the city, for around the same – or less than – the quoted app price. Yes, I saved the booking fee by jumping in a rank taxi, but I also saved wait time.
How often does a rideshare app say cars are 1 or 2 minutes away as you press book, then it suddenly blows out to 6-7 minutes when a driver accepts (and takes 10 mins anyway). For me, when I want to get home to my family, time is money.
I’ve tried the same experiment on trips to other locations and saved money by taking a taxi. Up to 10% on the app’s quoted price – and I’m not comparing it to the crazy surge prices that appear sometimes.
Yes, you can save money after 10pm when taxi fares increase, and over longer distances, or on UberPool, but my rideshare use has dropped dramatically since early 2018. The value proposition has disappeared.
I should add that while the focus is Uber, Ola is regularly a disappointing experience, especially when it comes to trying to get a car, if you can get one at all, in a timely fashion. I’ve tried it repeatedly over 18 months and now largely ignore Ola.
Nowadays, if I use Uber, it’s Pool – it seems plenty others do too – but a lot less than I used to.
Then last week something interesting happened.
Uber offered me a 25% discount on my rides for a week or so. Ola’s been on a permanent rolling cycle of discounts since it launched in Sydney in March 2018, but a lot of the time, it would be more expensive than the alternatives without the discount.
Ridesharing’s arrival gave a complacent taxi industry the shakeup it so desperately needed. The incumbents needed to lift their game and have. CEOs like Andrew Skelton have also embraced technology and dramatically improved the customer experience. The playing field has levelled.
Skelton and his brand, 13cabs launched the latest prong in the company’s fightback with week with a series of 10 cheeky 15-second ads based around the idea of the taxis being “The official travel partner of…”
It’s clearly targeting a younger audience with humour as the official travel part of “the booty call”, killer heels, CBF’d (can’t be f&%$d), the ‘I love you man’ mate with a skinful you send home in a cab and in a dig at rideshare, the need for a bigger boot.
The taxis also have a secret weapon against the recent launch of Uber for Business.
Taxis are FBT (fringe benefit tax) exempt for trips between work and home paid for by your company. That exemption doesn’t extend to ride share services such as Uber, so a work-home trip would be subject to FBT if the company provides it.
Aside from the additional cost removing any competitive advantage to Uber, you’d be hard-pressed to find an accounts department that wants to take on that sort of administrative nightmare. Back to Cabcharge.
While the Roy Morgan research grabbed headlines because Uber use beat taxis, the notable detail was the resilience of taxi use.
Ridesharing didn’t steal market share, it unlocked a whole new customer base. Its challenge now is to keep it, because if I was an incumbent cab boss, I’d be exploring the possibilities of getting into that space in the same way that Qantas put the (now highly profitable) discount brand Jetstar in the market when the conventional wisdom was Australia could only sustain two airlines.
Andrew Skelton doesn’t need to tap investors for extra capital if A2B decides to return fire. He just not running “one of the world’s most profitable ride-sharing companies”. It’s one of the world’s only profitable ridesharing ventures.