“Why companies like uber, doordash, lyft, etc. make billions in dollars but make no profit?”
In: 4
gross vs net
if you get £1 pocket money off your mum each day, but you spend £1.01 each day. you lose money
but if you only look at the money coming in, you make £365 a year
Profit is revenue (money coming in) minus expenses (money going out). If revenue is equal or greater than expenses, then there is no profit.
Uber, Doordash, and Lyft have to pay their drivers, their advertisers, their customer service reps, their managers, their software developers, buy server space, etc. If all that money is greater than the amount of money pouring in, then they don’t have profit.
This isn’t too unusual though. Many start up companies aren’t profitable for the first few years. They need to build up a steady base of customers to offset the initial costs of setting everything up.
Lets say you build a lemonade stand. But the cost of plywood and work of painting the lemonade stand ends up costing more money than you made for the first week of being open. The next week you don’t have to spend money on building the stand anymore. So after you subtract the costs of lemons, sugar, and labor you still have some money left over as profit.
Profit = Revenue – Expenses
If a company is making a billion in revenue but also spending a billion in expenses, they are making no profit.
Why their expenses are high can be a variety of factors. For all of the things you mentioned, they are paying a lot for developers, IT expenditure, and advertising. It also can be that the company is spending all of their revenues on R&D and growth, like Amazon for the first decade plus of its existence.
Because they spend more money than they make. They all run very capital intensive businesses, and need to spend on:
* Paying their drivers
* Paying a large number of software engineers in the most expensive cities in the world (Bay Area, New York)
* Customer acquisition (advertising, promo codes)
* All of the infrastructure to run all their services
In these cases, they aren’t really plowing too much money back into the company for growth. It’s just that their high costs are higher than the revenue. But in examples like Tesla, they were spending every extra cent they made in R&D and building new factories (over a dozen in ten years), so they had no profit despite getting far more revenue than required just to build cars and otherwise run the company.
There are a lot of good answers here that give you the literal answer to your question. But I think there is more to your question than that.
Every company you mentioned in your question rely very heavily on creating a network. But they all run into the chicken and egg problem.
If Uber (or DoorDash, Lyft, etc) opened in your town tomorrow, you could sign on but would likely not see very many drivers, so you’d stop using them.
Likewise, if you’re a driver and log on, but see no customers, you’re not going to drive for them either.
All of these companies need to essentially subsidize their drivers and/or customers until the network is strong enough to stand on its own.
There are tons of ways to do this, but typically they offer some type of reward – like get your fifth ride free or an extra $50 for any driver logging into the app for longer than 4 hours.
For what it’s worth, Uber has longed claimed that they were profitable in their large markets. Their losses stem from trying to expand to other cities.
Bro, you just defined what a “Shitty Company” is. Revenue but no profit. Likely losses! Personally, I believe the “gig economy” is exploitative.
If I sell quality hamburgers, that taste good, for $0.50 each, I’m likely to sell a lot of hamburgers. There would probably be lines of people waiting to buy as many of them as they could.
If it costs me $1.00 for each hamburger produced, I’m losing money. I may be selling billions, and billions of hamburgers a year – but for each one I sell, I’m losing money in the process.
Uber/Lyft provide both a better quality of service, at a lower cost than traditional taxis for the most part – the problem is that they can’t afford to offer that level of service at a lower cost than taxis.
More people are going to choose a service that is cheaper, and better, than a service that is more expensive, and worse.
They make no profit because they are spending all their revenue and then some. This may seem like a bad thing but it’s mostly due to them investing in expanding the business than their product being bad not able to make money. When a company has room to grow sustainably, it’s better to invest money back into the company to help it grow larger rather than taking a profit. This will create more value for the shareholders because the total value of the company will grow as it grows in size. When it has gobbled up as much market share as it reasonably can, a company wil then begin opting to maximize profit and create value for shareholders by payong out that profit in dividends and buying back stock to drive up the price.
I agree. I don’t drive so I use a lot of co.’s mentioned. I tip and pay a lot.Drivers get so little and no customer service. It is especially difficult to get in touch with Uber
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