Last year, Uber lost $3 billion. By 2020, it wants to IPO. Here’s what it has to solve first – Quartz

Dara Khosrowshahi has solely been Uber’s CEO for a number of days, and he’s already pulling 180-degree activates his predecessor, Travis Kalanick. At his first all-arms assembly, he introduced that the journey-hailing firm might go public in about 18 to 36 months (although he set no agency deadline). Some Uber buyers possible breathed a sigh of aid, as Kalanick had famously stated in March final yr that Uber would delay its IPO “as late as possible.”

Yet an IPO additionally signifies that Uber, which has disrupted the taxi business worldwide since its launch in 2011, will lastly have to face the music for a number of the enterprise and authorized issues which have mounted up—notably, rising competitors from rivals and disputes over driver pay. Here are some questions it may have to reply earlier than its shares begin buying and selling in New York.

How can Uber scale back its losses with out dropping market share?

With an IPO pending, is the era of cheap Uber rides over?

Uber expanded shortly all over the world by throwing reductions at clients and bonus incentives at drivers. Compounded with its already low cost costs (UberX, its flagship tier, during which drivers use their very own private automobiles, is usually priced at three-quarters the price of an area taxi), these techniques have pressured Uber to swallow giant losses—about $3 billion in 2016 alone.

It definitely wouldn’t be the first unprofitable tech firm to go public. But buyers will need indicators these losses are shrinking. That means slicing again on the reductions and bonuses that made it widespread. To its credit score, its early efforts on that entrance look profitable—adjusted internet losses fell 14% annually in the course of the second quarter of 2017, whereas gross bookings doubled over the identical interval.

But slashing these schemes even additional or—gasp—elevating costs might trigger Uber to lose valuable market share. That’s very true within the US, which might be (the corporate hasn’t launched regional income knowledge) its largest and most profitable market. In the face of public backlashes towards its surge pricing, remedy of drivers, and company sexism scandals, it has began to lose ground (paywall) to native rival Lyft. Khosrowshahi reportedly stated that stopping this decline is the corporate’s most important task.

There are two methods it can do that, and neither is nice. It might squeeze drivers additional by taking a much bigger reduce of every experience, however that would make drivers give up or change to Lyft. Or it might increase its costs, and danger dropping shoppers. It may have to select.

Is it value burning money to compete with rivals in poor nations?

Of course, one other means to scale back losses is to duck out of locations the place the numbers don’t add up.

One apparent candidate for an Uber retreat is Southeast Asia, the place the corporate faces an intense battle with Singapore-based Grab (and arguably additionally competes with Jakarta’s Gojek, which provides motorcycle rides on-demand). Soon to be armed with $2.5 billion in funding, Grab has aggressively courted drivers and riders with generous discounts (paywall). The already low cost taxi costs in most of Southeast Asia be sure that margins will stay low—maybe so low that they’re not value a subsidy battle.

If it’s actually struggling within the US, Uber may additionally think about withdrawing from India, the place journey costs are additionally low and one other home rival, Ola, is competing for passengers. However, Ola’s recent fall in valuation means that Uber retains an higher hand.

A withdrawal wouldn’t be unprecedented for Uber—it sold its China business to rival Didi Chuxing and merged with home big Yandex.Taxi in Russia. If buyers get anxious, one other such merger could be within the works.

How can Uber maintain buyers calm with all these lawsuits?

Uber has had tense relations with the authorities in almost all of its cities to a point. However, two authorized battles particularly might complicate its eventual itemizing.

The first is a set of class-action lawsuits filed by Uber drivers within the US who argue they need to be categorised as staff quite than unbiased contractors. If they win, Uber could have to supply them advantages and set wages, which can value it extra than simply giving them a proportion of every fare. The second is a lawsuit filed by Waymo, Alphabet’s self-driving automotive subsidiary, which alleges that Uber stole its trade secrets.

Ben James, a Hong Kong-based companion at regulation agency Kirkland & Ellis, says these points doubtless gained’t be sufficient to bar Uber outright from an IPO. Instead, the Securities and Exchange Commission will merely require the corporate to listing them in its prospectus. However, he provides, if Uber goes public with the instances unresolved, they might hinder the corporate’s potential to increase capital. “It’s certainly in their benefit to clean up as many outstanding legal issues as they can so investors don’t factor that into the price they’re willing to pay,” he says.

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