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Facing a Price War, Uber Bets on Volume The U.S. operation cuts fares while promising imminent profit Im not even sure I want to drive anymore Its becoming a bit of a holiday tradition for Uber: ringing in the new year by lowering fares. Amid a price war with rival Lyft, the ridehailing leader reduced its rates by 10 percent to 45 percent in 100 cities across North America. In Detroit, Uber drivers permile rate is less than it takes to cover their gas and the depreciation of their cars, according to IRS figures. Its depressing, says Bill Scroggins, an Uber driver in Indianapolis. Im not even sure I want to drive anymore. It feels like Im doing it for free. This is the third year in a row Uber has discounted fares in January. It calls the cuts seasonal but says they could last indefinitely. Last year rates never rose again in almost a third of cities; only in two did they return to precut prices. Uber has instituted temporary hourly wage guarantees to limit drivers earnings declines. Its assured Scroggins and other outraged drivers theyll come out ahead by making more trips an hour thanks to increased demand. That may be what Uber is telling itself, too. A few months ago, Chief Executive Officer Travis Kalanick told employees that North American operations would turn a profit in the second quarter of this year. The goal sounds less realistic in light of the price cuts. Uber has to sacrifice profits for growth, says Evan Rawley, a professor at Columbia Business School. We care deeply about driver New York area. Delebecque says hes not concerned about the limits of the companys audience: Consumers are looking for interesting flavors. Fermentations unlocking a whole new element. Peter Andrey Smith The bottom line Afineur is fermenting coffee with combinations of bacteria and fungi to give the beans more rarefied flavors. Afineurs fermentation process resembles the one that takes place inside the civets gut Civet-digested coffee beans go for more than $600 a pound; Afineurs lab-cultured beans cost $69 a pound Coffee cherry 31 Technology FROM LEFT: COURTESY PIXIE; ILLUSTRATION BY 731 Technology Hardware A Pixie to Keep an Eye On Your Keys A bouquet of sensors connects the lowest-tech items to the Web Consumers are being bombarded by connected devices Amir BassanEskenazi is walking around an Indian restaurant in Los Altos, Calif., searching for his keys without ever looking up from his iPhone. Quoted Donald Trump, during a Jan. 18 speech at Liberty University. Apple CEO Tim Cook has said the U.S. lacks other countries manufacturing expertise. Were gonna get Apple to start building their computers and things in this country instead of in other countries. earnings, says Andrew MacDonald, a regional general manager for Uber. We believe in price cuts when demand slows. On Jan. 15, Lyft said it would cut fares, too. With recent price changes from the competition, we need to take action, Lyft wrote in an email to drivers. The company also announced a $1 billion round of funding on Jan. 4 to help keep its pinkmustachioed cars on the road. That brought Lyfts fundraising total to about $2 billiona ways from Ubers $10 billion, but enough to dash Kalanicks hopes of knocking Lyft out of the market. Uber is also churning through cash a lot faster than Lyft, having said it will spend billions to push its way into China, India, and Southeast Asia. In the first quarter of 2015, Uber lost $385.1 million on $287.3 million in revenue, according to leaked figures published by the Information, a tech news site. And losses are growing: In the third quarter, Uber lost $697 million on $498 million in revenue, according to a person briefed on the numbers. Over the first three quarters of 2015, Uber lost $1.7 billion on $1.2 billion in revenue. For perspective, during Amazon.coms worstever four quarters, in 2000, it lost $1.4 billion on $2.8 billion in revenue. CEO Jeff Bezos responded by firing more than 15 percent of his workforce. As it tries to expand abroad, Uber is counting on North America as a moneymaker. Kalanick predicted the continents imminent profitability last September, during a company wide gathering in Las Vegas. (Beyonc also performed.) Globally, Uber tends to lose money per ride, but ridership is growing. Total trips increased about 40 percent from the second to the third quarter of 2015, says a person familiar with the data. On a November call with investors, acting Chief Financial Officer Gautam Gupta said the company is profitable in two of its biggest countries, though he wouldnt name them. In North America, Uber has inched toward profit, even with lower fares, in large part by leaning harder on drivers. On the screen, a directional indicator that looks like a compass point steers him toward a table in the middle of the room. When he holds up the phone, its camera view of the room includes a circle flashing over the keys location. He still cant see them, so he waves his phone over the circled spot, and it starts chirping like a metal detector thats found a quarter on the beach. BassanEskenazi is conducting his search with Pixie, a locator tool he created that resembles a jumbo guitar pick and can be stuck or chained to frequently lost items such as keys, wallets, purses, iPads, or TV remotes. While that might not sound revolutionary, Pixies locator chips and software make the device more precise than many rivals. The technology isnt impaired by walls or other obstacles, so if youre in the living room and point your phone at the ceiling, it can show that your wallet is in the bedroom upstairs. The metal detectorstyle ping is similar to the proximity alerts of other stufffinder tools, such as the successful Kickstarter project Tile. Like Tile, Pixie communicates with an iPhone via Bluetooth. Unlike Tile, its sold in packs of four, which the app can name to keep each one identifiable. Together, three of the Pixies ping out signals to better triangulate the location of the one you cant find, at a range as far as 50 feet indoors and 200 feet outdoors. Outside that range, itll remember the items last location. Its an extremely complex system, BassanEskenazi says. None of this was done before. Pixie has presold about 10,000 of the fourdevice packs on its website; early backers paid $35, but now buyers will pay $70. (Tile costs It takes as much as 30 percent of a drivers fares now, up from 20 percent two years ago. Since 2014 its been charging riders an upfront Safe Rides fee, which goes directly to Uber. The fee started at $1 per ride; its up to $2.50 in some cities. Uber has said it uses the charge to help fund things such as safety education and background checks. If drivers win rights as employees or manage to form unions, Uber may have to change strategies. For now, a steady influx of contractors means the company can get away with added fees and rate cuts, says Simon Kwok, a Boston driver who runs a blog about Uber and Lyft. While veterans complain that rates used to be higher, he says, the new guys just dont know. Eric Newcomer and Ellen Huet The bottom line Ubers third year of January rate cuts is complicating its efforts to eke out a profit in North America by June. $1.7 billion Amount Uber lost in the first three quarters of 2015, on revenue of $1.2 billion.

Questions:

1. If Uber reduces its rates and increases its take from drivers, what is the likely effect on the components of its income statement? Explain your answer.

2. What effects might reducing its rates have on Ubers balance sheet? Explain your answer.

3. Should Uber disclose to investors the company's sales by geographic region? Explain your answer.

4. What effect do you think the decline in gas prices has had on Uber's profitability? Explain your answer.