Eli5: I saw that Uber is still not making money, how is that possible, they have a lot of people working for them, worldwide known and also if they dont make any money how are they still alive?
In: Economics
Uber has been GAAP profitable for 5 straight quarters and was just listed in the S&P 500 index. What you heard is wrong. Despite the noise, Uber is currently in an excellent position to execute on many big bets in AI, AV’s and new markets. They are also one of the only tech companies that didn’t require mass layoffs in 2023, with no plans for 2024 either.
Because the investor class is using their wealth to smash the middle class and the industries that support them, by subsidizing money losing businesses to undercut sound ones, to bring those industries and the people that work for them under their corporate thumb
related question: why does it take so many people to run what’s effectively a GPS and texting app? how much of Uber’s staff is software/tech people vs managerial/admin/marketing/etc?
TL;DR: Focusing on quick growth and future value rather than “profit now”.
In some cities, they are profitable – once they get established, push the competition out, and have enough drivers, they start raising prices for riders while either lowering or at least not raising as much what the drivers get.
Elsewhere, they’re trying to get established in order to be profitable later. In those cities, they often used to pay drivers more than the rider paid, just to get more drivers, more riders, and generally get people “hooked” so they can push out competitors and get profitable later. I would expect them to be out of this stage in most places though.
This is common for “growth companies”, and investors are OK with it because of the massive profits they expect to come after the growth phase. Being profitable in the growth phase could even be seen as a *bad* sign because it could indicate that the company isn’t spending enough money on growing/expanding more.
Uber also spends money on support, driver monitoring/onboarding, fraud/failed payments, and most importantly: running and developing the app. The technical infrastructure is most likely inefficiently written and requires unreasonable amounts of hardware (or paid cloud resources) to run, because they focused on quick growth not optimization and “grew up” in an “infinite investor money” environment. Additionally, while it may not look like the app does much, building all the different integrations and features (in one region you can pay cash, in another you can rent certain scooters on Uber, elsewhere they offer helicopter taxi services) does require developers for the apps (Android and iOS) and the backend servers that support it.
I suspect that Uber is now transitioning from “growth” to squeezing what they have in most markets, which is likely part of the reason why my experience with Uber recently has been worse and worse: worse drivers, worse availability, higher prices… – we’ll see whether they’ll manage to turn highly profitable, or continue to burn money while running out of potential growth. *That* would be their end – because without growth, there wouldn’t be much reason to give them more money to burn in the hopes of them becoming profitable later.
Right now Uber gets to continue existing because it’s stock is $65.11 a share, up from $21.67 a share back in July of 2022. That’s it. That’s the only reason it hasn’t fully collapsed. It’s being propped up by speculative trading.
Let’s put that into better perspective. If you had bought 40,000 shares back in July 2022 near the bottom, you’d have invested about a million dollars. *$1,000,000* if you sold those 40,000 shares Friday at about $65/share, you’d walk away with about 2.5 million dollars or $2,500,000. Now, you still have to pay taxes, but you’d profit more than a million dollars after it’s all said and done.
There’s also accounting gimics going on. If they show a profit, they have to pay taxes on it. If they allocate expenses correctly they have the same money, but no tax burden. They arent going to make themselves profitable until theyre ready to be profitable.
Uber had a net profit margin of 2.3% last quarter, so they are already profitable and this whole question is nonsensical.
Their profits aren’t higher because they have a very high Capex expenditure as they are prioritizing growth. This can be turned into profits almost instantly the minute they choose to slow down growth. Investors want them to prioritize growth though.
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