Uber Technologies Inc.'s (UBER) explosive growth and constant controversy make it one of the most fascinating companies to emerge over the past decade. The global ride-sharing application, founded in 2009, disrupted modern transportation as we know it and at one point grew to become the highest-valued private startup company in the world.
Ten years after its founding, Uber went public on May 9, 2019. Though the road has been bumpy, Uber remains a major company in the ride-sharing space. In its most recent quarterly earnings release, for Q2 fiscal year (FY) 2021, Uber reported a net income of $1.1 billion, $3.9 billion in revenue, and 1.5 billion trips on its platform.
- The world's largest ride-sharing company, Uber Technologies, was founded in 2009 and quickly grew to become the world's most valuable startup.
- Uber’s disruptive technology, explosive growth, and constant involvement in controversy make it one of the most fascinating companies to emerge in recent years.
- Uber's IPO was one of the most highly anticipated of the year, and the company was valued as high as $120 billion by Wall Street investors. The company went public on May 9, 2019, but fell flat: Uber made history with the biggest first-day dollar loss in U.S. history.
- Since then, Uber has worked on becoming profitable and has completed some high-profile acquisitions of companies including JUMP, Postmates, and Drizly, as well as a partnership deal with Lime. It also sold its highly anticipated self-driving car division in 2020.
- In 2017, Uber's corporate culture was outed for being highly hostile, sexist, and offensive, resulting in a company-wide investigation. CEO Travis Kalanick was forced to resign, along with more than 20 employees.
Uber History: Paris and Rapid Growth
Uber’s story began in Paris in 2008. Two friends, Travis Kalanick and Garrett Camp, were attending LeWeb, an annual tech conference The Economist describes as “where revolutionaries gather to plot the future." In 2007, both men had sold startups they co-founded for large sums. Kalanick sold Red Swoosh to Akamai Technologies for $19 million while Camp sold StumbleUpon to eBay (EBAY) for $75 million.
The concept for Uber was born one winter night during the conference when the pair was unable to get a cab. Uber was founded on a single idea: "What if you could request a ride from your phone?" Initially, the idea was for a timeshare limo service that could be ordered via an app. After the conference, the entrepreneurs went their separate ways. However, when Camp returned to San Francisco, he continued to be fixated on the idea and bought the domain name UberCab.com.
UberCab: The Beginning
In 2009, Camp was still CEO of StumbleUpon, but he began working on a prototype for UberCab as a side project. By summer of that year, Camp had persuaded Kalanick to join as UberCab’s "chief incubator." The service was tested in New York in early 2010 using only three cars, and the official launch took place in San Francisco in May.
Ryan Graves, who was Uber's general manager and an important figure in the early stages of the company, became CEO of Uber in early 2010. In December 2010, Kalanick took over as CEO, while Graves took on the title of general manager and senior vice president of Global Operations.
The ease and simplicity of ordering a car fueled the app’s rising popularity. With the tap of a button, a ride could be ordered, a GPS identified the location, and the cost was automatically charged to the card on the user account. The San Francisco-based startup quickly became one of the hottest companies and grew quickly. The first Uber ride was requested in 2010 and less than two years later, in 2011, Uber had already launched internationally in Paris, where the idea for it first took root.
Uber's Valuation: Funding Rounds
First five years: 2009 to 2013
After starting in 2009 and launching its first ride in 2010, the company received its first major funding, a $1.25 million round led by First Round Capital. 2011 was a crucial year for Uber’s growth. Early in the year, the company raised an $11 million Series A funding round led by Benchmark, and it went on to expand to New York, Seattle, Boston, Chicago, and Washington D.C., as well as abroad in Paris.
In December at the 2011 LeWeb conference, Kalanick announced that Uber raised $37 million in Series B funding from Menlo Ventures, Jeff Bezos, and Goldman Sachs. In 2012, the company broadened its offering by launching UberX, which provided a less expensive hybrid car as an alternative to black car service.
Additional funding and setbacks: 2014 to present
In July 2015, Uber became the most valuable startup in the world, valued at $51 billion after its funding rounds. In June 2016, Uber then raised a further $3.5 billion from Saudi Arabia's sovereign wealth fund.
With Uber's rapid growth came many controversies. In April 2017, Uber opened up about its finances for the first time to Bloomberg and reported a global loss of $3.8 billion for 2016. This included losses from its China business, which it sold in the summer of 2016—without it, net adjusted losses were $2.8 billion.
By the following year, the firm's valuation had been knocked down from a lofty $68 billion to $48 billion. In 2018, Japanese conglomerate SoftBank Group, along with a group of investors including Dragoneer Investment Group, successfully bid for 20% of Uber's stock at this lower valuation, a 30% discount on the last valuation figure. The deal reportedly gave SoftBank 15% in the ride-share company while Uber got a powerful ally in Asia that could help turn the tide for the company after a few very public missteps. The remaining shares reportedly went to other investors in the group.
This period was also marked by other challenges, including the fatal crash of a self-driving vehicle from Uber's fleet. Additionally, on Aug. 8, 2018, New York City Council voted to put a pause on new licenses issued to ride-hailing services such as Uber and Lyft.
Uber IPO: Disappointing Feat
Uber's IPO made history as the biggest first-day dollar loss in IPO history in the United States. At one point, Uber was valued at $120 billion by Wall Street analysts, which would have made it the largest company ever to debut on the stock market. After its IPO, it was only valued at about $69 billion—just over half of its high-hopes IPO.
Uber's current market capitalization, as of September 2021
Uber Culture Controversy: Kalanick Out, Khosrowshahi In
2017 was a rough year for Uber. The troubles began in February when a former female Uber engineer outed the company for its sexist culture in a 3,000-word blog post. It was alleged that Uber's corporate culture was highly hostile, sexist, and quite offensive to most people.
The post quickly went viral and a number of high-level employees were let go or resigned for reasons relating to the allegations in the following months. Following the blog post, the board called for an internal investigation, which became known as the "Holder Investigation" (it was lead by former Attorney General Eric Holder). The investigation resulted in 47 recommendations intended to improve the culture and work environment, and according to Uber, the firing of more than 20 staff members.
In the following months, scandals seemed to haunt both the company and its CEO. Letters were released to the press which confirmed that sexist attitudes came from the top down—including from Kalanick himself. Kalanick was also caught on video arguing with an Uber driver about lowering fares, which did not strengthen his image in the public eye.
On June 21, 2017, Kalanick resigned after a shareholder revolt. After a little more than two months, it was announced that Dara Khosrowshahi—then-CEO of Expedia (EXPE)—would take over. Khosrowshahi came to New York in 1978 with his parents to escape the Iranian revolution. He started his career in finance at an investment bank and eventually became the CFO of IAC/InterActiveCorp (IAC), a position he held for seven years before becoming the CEO of Expedia.
As of Sept. 3, 2021, Dara Khosrowshahi remains the CEO of Uber.
Uber's History of Legal and Policy Challenges
During its expansion, Uber has met fierce resistance from the taxi industry and government regulators. As part of its strategy to mitigate the opposition, the company hired David Plouffe, a high-profile political and corporate strategist who worked on Obama's 2008 presidential campaign. Here, we chronicle some high-profile moments of Uber's challenges.
Surge pricing backlash
Uber uses an automated algorithm to increase prices based on supply and demand in the market. On New Year's Eve 2011, prices soared to as much as seven times standard rates, fueling negative feedback from users. Surge pricing triggered outrage again during a snowstorm in New York in December 2013. More recently, Uber committed to capping surge pricing during several blizzards in New York City.
In 2014, taxi drivers in London, Berlin, Paris, and Madrid staged a large-scale protest against Uber. Taxi companies have claimed that because Uber avoids their expensive license fees and bypasses local laws, it creates unfair competition. The case was heard by Europe's top court in November 2016. Uber lost its license to operate in London, where the company had 40,000 registered drivers in September 2017. On June 26, 2018, a London judge overturned the ban, effectively allowing Uber to operate under a 15-month license along with conditions. In September 2020, Uber was granted a new license to operate in London. The current license lasts for 18 months and is conditional on Uber providing periodic safety reports.
Fair pay and driver benefits
In New York, it became known that Uber had mistakenly charged drivers commission based on pretax earnings as opposed to after-tax earnings—at a cost of tens of millions of dollars to New York drivers. The company said it was an accounting error, and that it was committed to paying its drivers back in full as quickly as possible.
The issue does raise questions about the fairness of who ends up paying the taxes. Driver advocacy groups have argued for some time that Uber is avoiding a tax at the expense of its drivers, something The New York Times found evidence to support. The paper estimated it could have cost drivers hundreds of millions of dollars.
On June 13, 2017, a New York judge ruled that Uber drivers should be considered employees as opposed to independent contractors at least in certain cases. This decision opens up for drivers to receive employee benefits, which would likely have a significant impact on the bottom line. Later, restrictions on licenses by the New York City Council were introduced, which represented a blow for Uber and meant a pause on any new licenses for the ride-sharing service in the city for a 12-month period.
Meanwhile, California passed Proposition 22 during its November 2020 election, allowing companies like Uber to classify their workers as independent contractors in the gig economy, and not as full-time employees. The Uber-backed ballot measure is now the costliest in California history, with over $200 million spent in campaigning for it.
On Aug. 20, 2021, Alameda County Superior Court Judge Frank Roesch ruled that two sections of Proposition 22 were unconstitutional and that the measure as a whole was unenforceable. However, it remains in effect while its proponents appeal his ruling.
Settlement on claims of discrimination, harassment, and hostile work environment
In 2018, Uber paid approximately $7 million to more than 480 current and former employees to settle a 2017 lawsuit alleging gender discrimination, harassment, and a hostile work environment. The lawsuit claimed that Uber used a discriminatory ranking system that undervalued female employees and employees of color.
Discrimination against a blind customer
An arbitrator ordered Uber in April 2021 to pay $1.1 million to Lisa Irving, a blind customer. The arbitrator ruled that Uber's drivers had discriminated against Irving by denying her rides or verbally abusing her more than a dozen times. Uber had argued that it was not responsible for the drivers' actions because of their independent contractor status.
Uber vs. Lyft Competition
Competition has been ferocious between Uber and its closest rival, Lyft. In 2014, both Uber and Lyft claimed that drivers and employees engaged in sabotage by regularly hailing and canceling rides on each other’s services. Kalanick also openly admitted to trying to undermine Lyft’s fundraising efforts in a Vanity Fair article.
Uber's Acquisitions and Business Units
Uber Eats, UberPool, and credit card
Uber has a merchant delivery program for food deliveries called Uber Eats. Uber also offers UberPool, which allows drivers to pick up multiple riders on one scheduled ride, making it a cheaper option compared to UberX and Uber Black. In 2017, the company, in partnership with Barclays, also rolled out a co-branded rewards credit card in the U.S.
On July 9, 2018, Uber announced it would be investing in the electric scooter rental company, Lime, in collaboration with Alphabet Inc.'s GV (GOOG). Lime's lightweight scooters are available for rent all over a number of major cities, and customers leave them on the sidewalk for the next rider, making for a convenient and clean-energy-based business model.
The deal is part of a $335 million investment round, and the business is valued at $1.1 billion. Uber plans to promote Lime through its app and brand its own logo on the scooters. Uber made similar efforts with bike-share startup JUMP before acquiring the business for reportedly close to $200 million in April 2018.
Another high-profile acquisition occurred in July 2020, when Uber announced that it was acquiring food delivery app Postmates for $2.65 billion in an all-stock deal. As the food delivery business continued to grow, the acquisition (along with the creation of Uber Eats) was a strategic one in order to offset losses from the ride-sharing portion of the business, which has been struggling, especially during the pandemic. After the Postmates acquisition, Uber's stock hit an all-time high.
Uber self-driving cars
Like Google, Apple Inc. (AAPL), and Tesla Inc. (TSLA), Uber is also a front-runner in the future of driverless cars. However, the road has been bumpy, starting with Alphabet Inc.'s Waymo suing Uber in 2018 for theft of its self-driving technology, which occurred the same year as the ouster of Uber's founder and CEO at the time.
Uber hit perhaps its worst snag yet in March 2018, when a self-driving car fatally struck a pedestrian, causing the company to temporarily suspend all testing. In May 2018, Uber announced that it would halt its Arizona testing program and go elsewhere. In July 2018, Uber's self-driving cars made their return in Pittsburgh, but business lagged.
In December 2020, it was announced that Uber would sell its autonomous vehicle business to Aurora, a startup in San Francisco that was started by the former head engineer of Waymo. Uber had invested more than $1 billion in the business at the time of the sale.
The Bottom Line
Uber is one of the most closely followed companies in the world, once going down in history as once the world's most valuable startup and disrupting the modern ride-sharing and transportation industry as we know it. Though the COVID-19 pandemic has thrown a wrench into Uber's plans to become profitable, marking large losses in its ride-hailing business, the company's strategic investments in its food delivery arm Uber Eats as well as its recent California Proposition 22 win bode well for the company. Perhaps soon, time will tell if Khosrowshahi can lift Uber's valuation to its originally projected $120 billion.