“Why companies like uber, doordash, lyft, etc. make billions in dollars but make no profit?”

19 views
0

“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.