On Thursday, Uber—the regulatory arbitrage enterprise worth tens of billions of dollars—released its third-quarter earnings report and laid out its intention to replicate the successful Proposition 22 ballot initiative nationwide and beyond.
For the most part, the earnings report was normal for the ride-hailing company. Uber spent a great deal of time discussing its financials using non-standard accounting practices, an old tactic that has allowed it to distract from persistent losses and assure investors profitability is inevitable. There are, however, two areas of interest in this report: Uber Eats and Proposition 22, a successful ballot initiative in California that was backed by Uber and other gig companies that exempts them from reclassifying their workers as employees.
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After Proposition 22 passed in California on Tuesday night, it appeared as though the gig companies were poised to take the initiative’s success as a signal to replicate it across the country, codifying an underclass of gig workers barred from receiving the benefits and stability associated with traditional employment. Now, that’s exactly what they are promising to do.
During an earnings call, CEO Dara Khosrowshahi was thankful for California voters who, in his words, “listened to what the vast majority of drivers want, new benefits and protections with the same flexibility.” Khosrowshahi also made it clear that Uber intends to build on its success with writing laws that undermine labor rights to its benefit. “Going forward, you’ll see us more loudly advocate for new laws like Prop 22,” Khosrowshahi said.
The Uber CEO’s comments echo those of other members of the Yes on Prop 22 committee.
After Prop 22’s victory, DoorDash CEO Tony Xu said “Now we’re looking ahead and across the country, ready to champion new benefits structures that are portable, proportional and flexible.” Anthony Foxx, Lyft’s chief lobbyist and former Obama transportation secretary, told the Washington Post in an interview that “[w]e absolutely want to engage with our friends in labor, and to figure out whether there’s a larger, even more impactful way to move forward.”
In response to a question from a UBS analyst about whether Prop 22 should be expanded to other states or nationwide, Khosrowshahi added that “we were the first to come forward with this IC-plus model: the idea that drivers deserve flexibility plus benefits.” Khosrowshahi also said Uber had “really constructive dialogue” in countries such as India, which recently passed legislation that he described as “very constructive.”
In late September, India passed a series of labor bills that would give employers more freedom to fire workers, effectively make it illegal to strike, and allow the government to exempt workplaces from following any law. The set of labor bills also propose a national social security board to help plan “suitable schemes” for contractors or migrant laborers, as well as a provision that allows gig companies to extract 1-2 percent of a worker’s monthly pay to cover social security benefits.
The second area of interest is UberEats, which the company has long celebrated as a source of stupendous growth, a key part of its future “delivery business,” and a success story where the company “essentially built a second Uber in under three years,” as Khosrowshahi put it on Uber’s second quarter earnings call.
For a long while now, the evidence has actually suggested the opposite: that UberEats is an even worse performing line of business than Uber’s core ride-hail service, despite huge growth rates that have persisted during the pandemic. Even when Uber uses its own invented metric (called “adjusted” EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization), the numbers don’t look good.
Uber’s second-quarter adjusted EBITDA results reveal only marginal improvements to quarterly losses in Delivery, despite revenues more than doubling. Uber’s ride-hailing business (“Mobility”) did not have the same growth as Delivery, was hit hard by coronavirus, and saw massive declines in revenue and on-paper “profits” over the same periods, but still performed better than Delivery.
While Uber’s contrived metric has made Mobility appear to be on a path to profitability on paper, the Delivery segment has never come close. Instead, it has persistently operated in the red, with its expenses seemingly rising just as fast as its revenues despite massive growth in revenues, gross bookings, market entries, customers, and overall market share.
In the earnings call, Khosrowshahi talked about “seiz[ing] the vastly expanded opportunity ahead for the delivery business” and Chai talked of a “relentless focus on cost discipline” as well as a “drive towards quarterly adjusted EBITDA profitability”, despite there being no evidence now or last quarter that this was ever in the cards for Delivery.
This shouldn’t come as a surprise. For years, Uber has cycled through narratives unmoored from reality with the sole purpose of making itself and its books appear more attractive. In a few short years, it has called gone from aiming to be the “Amazon of transportation” to becoming the “operating system for your everyday life in a city”, from betting on driverless cars to deliver profitability to calling itself a software company and pushing into high-margin deals with public transit authorities and government agencies.
New narratives have never made Uber profitable, and never will, although Proposition 22 will likely allow the industry to limp along a while longer even as labor groups signal they will challenge the ballot measure in court and workers begin to mobilize nationwide to contain Prop 22.
