Let’s break it down.
>Uber takes 25% of the money from each ride on the app.
>It does not pay for any of the costs involved in the actual rides, not fuel, insurance, or vehicle costs, all that is paid by the driver.
>Their customer service is outsourced to India
>Each city they operate in requires a tiny office with very few people, simply to screen drivers
>They maintain mobile apps to operate their service.
Now, based on this, there is no reason why they should not be turning a profit on their $11.27 Billion annual revenue. What causes the $1.8 billion loss?
In: Economics
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Uber lost billions already this year. 3 billion and some cause of stock compensation. 300 million cause of driver rewards (5 trips in a day nets you 5 bucks more, as an example). 3 billion in r and d. 1.6 billion for administrative costs. 1.2 billion for sales and marketing.
Even a few people at each office is still hundreds of thousands. The building. Support staff. Lawyers. Advertising. The list goes on. And it’s not so much just a straight up 25 percent goes to them of every ride as it might seem. A lot of rides cost them more than it earns them. 🙂
They’re not trying to make profits, they’re looking for a monopoly so they give out discounts and promotions and lose money in an effort to outlive their competition and then make a profit when they’re the only ones around. The investors keep pouring money into it because otherwise the company fails and they lose everything they’ve invested so far. It just doesn’t work like normal companies !
they want total monopoly on the market… once they have that and all the traditional cabbies are out of money and other services cant keep up with their pricing then they will turn the screws and milk the population for every penny it has, so glad swansea district where i live denied them a license to operate, outr cabs are still super cheap thanks to competition
Tesla for the first time ever had two sequential quarters where they made a profit in 2018. For a lot of companies, they tend to spend more on growth then they earn, with intentions of making it back in the future. Besides this, Uber has also had a lot of oopsie doopsie’s in the last few years.
Just a small clarification, Raiser Inc (Uber) does provide commercial insurance for drivers.
consumer brands with a monopoly on the market frequently become massively profitable.
don’t count on the R&D costs at Uber being real. there is surely transfer pricing going on with that to help reduce taxes.
They subsidize the price of a ride to gain market share. Lyft has very high insurance expenses, so, could be the same for Uber.
Former taxi business exec here…Uber and all other “unicorns” basically observe some form of [blutzscaling](https://hbr.org/2016/04/blitzscaling). Coined by Reid Hoffman, it’s the practice of being the early or first mover in a market to rapidly grow market share.
This is designed to disrupt and destabilize traditional markets in a way that they cannot catch up. These companies rely on venture capitalist funds to stay alive and purposely lose tons of money until they have the share of the market or have created a new market which is profitable.
What does that mean for Uber…essentially Uber has destabilized the personal transportation market and gotten a tremendous market share by over supplying it. This basically means…when you click on the Uber app and see a 10 min wait time it’s not because of fancy algorithms, it’s because Uber basically has drivers everywhere just in case you want to ride. What’s great for Uber (and shitty for the drivers) is that unlike traditional personal transportation markets (taxi), Uber drivers only get paid when they carry a fare, but when they do carry someone, Uber has artificially held prices down so people will take the service. So, even though they pay less for the driver, the driver isn’t making enough for the company to turn a profit.
Ok…now to answer your question, because of this over supply and not charging as much, Uber loses on every ride.
Further, Uber’s customer acquisition costs are very high, it costs them tens or more millions to enter a new city.
All that is to say, without taking more subsidies from public entities, or charging more, Uber can’t make a profit for a little while on their core business. Which is why utilization is so important.
Utilization is making sure the driver is generating revenue for every hour they are out there. That’s why Uber eats, and deliveries, and ancillary services like that will be Uber’s cash generators for a little while until they figure out the core business model.
Just because they’re not turning profits doesn’t mean they’re not generating cashflow, or people aren’t earning money off of it.
They’re in the red to avoid paying taxes. It’s standard business practice.
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