Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
In December of 2019, this column wrote an entry detailing Uber’s micro-mobility efforts. Just six months ago — a mere two quarters — Uber’s Jump team was on the record saying that its parent company wanted to “double down on micro-mobility.” At the time, before COVID-19 and the decline in human travel, it made some sense.
Things have changed for both Uber and micro-mobility sector. Uber’s financial performance was looking up before the pandemic, with the company promising a more aggressive adjusted profitability timeline. Lime, a dockless scooter company, was also making noise about profits—or something close to them.
Both goals now seem out of reach. Bird and Lime, the best-known American scooter companies, have both cut staff this year. And The Information recently reported that Uber may invest in Lime at a dramatically lowered valuation with an option to buy the company at a later date.
As Uber already has its own micro-mobility bet (recall that it bought JUMP and thus has its own scooters in-market), why would it go through the bother of repricing Lime to maybe buy it later? The Information notes that Uber’s own micro-mobility bet is expensive. But given Lime’s own persistent losses and cash burn I couldn’t make the idea square in my head. So, this morning let’s peek at Uber’s numbers ahead of earnings and see what we can learn about its 2019 in the micro-mobility world, and if that helps us understand why it might drop up to nine figures on Lime during the smaller company’s struggles.
Scooters are expensive
The problems that led to a crash in bike-sharing startups applies also impact scooter-sharing startups. Bike-sharing startups had large capital costs, maintenance costs, distribution costs, and software development costs. Scooter-sharing startups had all of those and recharging costs. It’s hard to charge a few dollars to a consumer, and generate enough margin from the ride to pay for the scooters’ existence, care, and charging, let alone help finance a Silicon Valley-grade software team.
No bike-sharing or scooter-sharing company that I’m aware of has managed to generate consistent adjusted profit across their entire business. (Lime, in fact, was a bike-sharing company before it pivoted to scooters. It also tried LimePods, rebranded cars, and other stuff, but scooters are what drove growth for the firm.)
The scooter startup bet is not working out; scooter rides simply do not generate enough gross margin to fund the business. This is made even more difficult by the recurring capital expense of buying new hardware, which eats into cash reserves amongst companies in the shared-mobility space.
The economics are enough to make people mad. The CEO of Bird once famously got mad about a (correct) news story concerning his firm recording a huge loss off a hardware write-down. Bird scooters, he tweeted, were doing better than the media was letting on. He shared a chart showing how the math worked out.
This year The Verge wrote about Bird’s implosion, reporting that the shared chart “displayed Bird’s unit economics from an unrepresentative, peak summer month.” If you have to misrepresent your own business to defend it, it’s probably not that good of an operation.
The struggles of Lime and Bird with falling revenues during a period in which private capital is becoming more risk-averse, is precisely why Uber and dangle some disaster capital at its former rival and probably get the deal done.
Now that we understand the lay of the land, let’s get back to the question of why Uber would want to buy Lime’s operations when it already has its own scooters.
Costs, losses
Per The Information, “Uber’s own scooter and bike rental efforts have struggled financially more than Lime’s.” That’s saying quite a lot, given that Lime is about to take a huge valuation cut to just stay afloat.
How bad are Uber’s numbers? Let’s peek.
According to Uber’s Q4 2019 earnings (we get new numbers from the firm later this week), its “Other Bets” category’s “largest investment within the segment is [its] New Mobility offering.” Cool. So, the Other Bets results from the company will let us track how Uber’s scooters and bikes are performing.
Here are the group’s 2019 results, looking at adjusted net revenue (ANR), and adjusted profit:
- Q1 2019: $18 million ANR, -$42 million adjusted EBITDA
- Q2 2019: $28 million ANR, -$70 million adjusted EBITDA
- Q3 2019: $38 million ANR, -$72 million adjusted EBITDA
- Q4 2019: $35 million ANR, -$67 million adjusted EBITDA
In its defense, Uber’s Other Bets group has managed to raise its adjusted revenue to more than half of its adjusted losses. That’s not much of a defense, however.
With Uber’s revenues expected to drop sharply in Q1 2020 due to COVID-19, the firm is focused on cash conservation so that it can climb out of its present hole. Paying $65 to $75 million in quarterly adjusted losses to pay for what amounts to zero revenue (Other Bets was around 1% of total ANR at Uber in Q4 2019) probably isn’t super exciting for the Uber crew.
But if they could, say, buy a huge chunk of Lime and let its — reportedly — more efficient scooters be the only scooters in its app (Lime scooters have had some presence in Uber’s mobile application for some time), the firm could save nine-figures of cash each year; the investment into Lime would pay for itself quickly. And Lime wouldn’t need to grow like a startup at that point; it could decelerate and simply try to survive so that its effective parent company could have scooters in its app.
That situation can pencil out.
If Uber helps Lime survive, what might happen to Bird isn’t clear, but the move would cut off a key exit path for the struggling company.
Looking at the costs of Uber’s Other Bets group reminds one of Alphabet’s own Other Bets, which are even less profitable in percent-of-revenue terms. You start to wonder why at some point. Uber has bigger fish to fry in saving its ride-hailing business and learning how to lose less money from food delivery. Perhaps Lime can operate as its scooter vassal and get some of those losses out of its hair.
Investors, after all, love cost cutting.