It seems that all the billions Uber has raised are not enough to finance this black hole of money. Now Uber has confirmed it wants to raise a further $1.25bn through a leveraged loan. This decision comes after Uber releases its annual losses for 2017, a total of $4.5bn.
It's amazing that most stable companies will go bankrupt when facing such a loss, but Uber for some reason continues to persuade investors and now banks to throw their money away into this bad venture.
Basically, businesses in the software business, and that is what Uber is, a software company selling the use of its app to drivers and companies but holding no actual assets that can be sold to cover its investments, usually close shop well before they balloon into giant hydrogen bombs of inflated value.
In a recent analysis of the business model, Uber owns zero physical assets. It has no real estate, no vehicles, no technology that is so unique to make it worth anything. All Uber has is a large list of customers and drivers with global coverage. This might seem to be enough to give it value, but in fact, it is not, a company's business is to make money, not lose it. Uber is a venture business that is trying to prove it can be profitable, in essence, it should be, but with so many competing rideshare companies that have a more solid and conservative beginning, Uber looks like it is ready to implode.
The valuation that Uber received, around 48bn in 2017, which was set by SoftBank when it decided to invest $1bn in Uber and buy out shareholders with a further $9bn, makes Uber an interesting company for new investors. It also provides a grip for loan companies to consider such a large loan base.
The loan will maintain shareholder integrity and will be used to finance the companies legal and operational costs as well as help CEO Dara Khosrowshahi, to continue his reach for operational excellence and reduce overheads to maximize income. Khosrowshahi needs a lean company for its 2019 IPO.
However, let's take a look at this new situation. Uber, which has raised billions, is losing billions and is nowhere near a profit-making solution. In fact, no rideshare company has yet reached profitability; they are all working on private equity and constantly raising funds to fuel their constant losses. This is the first time a loan of this size has been asked for by a company of this nature, it will be interesting to see which financial institution will take a chance, literally a gamble, and give their money to a company that has no proof of repayment, it has no assets and can only rely on its "market value" as a base for the loan.
A loan is different to an investment. An investment is a calculated risk; a loan is a secured sale of money for money. The result of Uber's loan request will be scrutinized by every financial institution in a different light to the way investors scrutinize. Now we will see what Uber's real value is, and how much it will cost them.