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
I can’t speak to Uber specifically but more generally, being unprofitable is not necessarily bad (at least for some period of time). If you pour all of the money you earn directly back into the company (more employees, equipment, marketing, etc) and you can continually pull in more and more money each period then you won’t be “profitable” but you’ll have grown a ton. Then, you can start to ease back on investment at some point and the money you make can be used to pay ownership.
When exactly you pull back is a question of the needs of ownership. A small business whose owner is using the business as their livelihood doesn’t have a lot of freedom here. They need to take home money made by the business so they can eat. So small businesses tend to grow very slowly, if at all. But an enterprise backed by deep pockets can be play the long game and run on zero-profits and high-growth for a while.
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