8 ms·

Uber passengers only pay 41% of the cost of trips, with investor capital making up the difference FWIW this assertion (which isn't really core to the central t

by harryh 10y ago

Uber passengers only pay 41% of the cost of trips, with investor capital making up the difference FWIW this assertion (which isn't really core to the central thesis of the post, but still) is wrong. That number comes from https://ftalphaville.ft.com/2016/12/01/2180647/the-taxi-unicorns-new-clothes/ https://ftalphaville.ft.com/2016/12/01/2180647/the-taxi-unic... but the author of that story misread the data. Uber only counts their cut as revenue not the full cost of the ride. Despite this repetition (now corrected, thx!) of this incorrect data I find the overall thesis of the post compelling! As a disinterested bystander, it will be interesting to see how it all plays out. EDIT: It turns out the original 41% statement comes from http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver... not from the Financial Times. It can be hard to trace these things back sometimes.

viggity 10y ago
I know companies subsidize product costs to get larger market share, but subsidizing 59% seems a bit crazy.
- harryh 10y ago
  As I said, they aren't doing that.
  - tantalor 10y ago
    So what's the real number?
    - harryh 10y ago
      AFAIK there is not enough publicly available data to answer this question.
      - thinkmilitant 10y ago
        Oh no! It's probably even worse then! /s
    - MagnumOpus 10y ago
      Payments cover 79% of the ride cost (if we assume that the ride cost should covers the driver's cut and raises Uber's EBT to zero).
beefman 10y ago
What is the correct percentage?
- harryh 10y ago
  AFAIK there is not enough publicly available data to answer this question. But total_corporate_revenue(1) / total_corporate_spend(2) is an almost nonsensical way to calculate that number. (1) which is not the same thing, at all, as the total amount customers are paying for rides (2) which is not the same thing, at all, as the cost of providing all uber rides
  - peteretep 10y ago
    > (1) which is not the same thing, > at all, as the total amount customers > are paying for rides Why not?
    - harryh 10y ago
      Because they are two different numbers in the report in question. Maybe go look at it?
- dx034 10y ago
  Any percentage given is very misleading. In nearly all cases, Uber will make a profit when you take a ride. However, they built such an expensive company (huge R&D department, zillions of free coupons, ads everywhere) that they cannot pay for it without making a loss. If they suddenly had 10x as many rides or would shed coupons and R&D, they'd probably be profitable. But they'd also lose their edge they hope to have over Lyft & Co. NB: There are of course areas where they offer rides below the driver's cut, but that's probably rare after they exited China.
dantiberian 10y ago
Thanks, I've updated the post.
BurningFrog 10y ago
Also, that number must be Uber's total loss distributed per ride, rather than the profitability of each ride? I can't imagine that Uber loses money on each additional trip. If that was true, the boycotts are helping Uber!
- comicjk 10y ago
  The boycotts might help Uber's profits - by bringing them closer to zero - but that's irrelevant to Uber's goal of growing its user base.
- dx034 10y ago
  That's probably not how it works. Most of the rides itself will make some profit for Uber. However, Uber has huge fixed costs via free rides, ads, salaries, etc. These will create the loss. So if you have a coupon and use it, it's quite likely that Uber makes a loss. But for most other rides, the driver will usually get a bit less than what you pay. It's just not enough to cover the company costs.
  - prostoalex 10y ago
    > However, Uber has huge fixed costs via free rides, ads, salaries, etc. These will create the loss. Would those be essential at this point? Seems like everyone who wants a ride-sharing app has one, so their marketing expense should be substantially down by now. Startups typically keep the salary expenses controllable by compensating via equity (which does not have to be reported as expense unless one is doing GAAP), so it seems that it should be under control as well.
TrainedMonkey 10y ago
Personal experience, so take it with a grain of salt. I've talked with 2-3 Uber drivers in LA area. They seem to be getting 65% to 75% of what passenger pays. I think many of the core Uber markets are fairly profitable. This would imply that majority of the burn is focused on growth in new markets. Some potential problems with extrapolating the data: * Small sample size. * Uber rides cost more in California, observed 65% to 75% might not hold in other mature markets.
- harryh 10y ago
  That is my suspicion as well though I will add that in addition to spending to grow in new markets they are also, quite obviously, spending a lot to develop self driving cars (possibly sometimes through nefarious means!). Unclear if you count that as "growth in new markets" or not.
- passivepinetree 10y ago
  I think you're misinterpreting what the post and the GP meant. What's at issue here isn't that Uber drivers don't get to take home X% of what the passenger pays, but rather that the cost Uber charges passengers isn't enough to keep the business afloat without a significant amount of VC funding.
  - dcosson 10y ago
    I think the point of the comment was as kind of an upper bound. For instance if drivers made 100% (or more) of what the passenger pays, then Uber would be obviously not breaking even. At 65-75% it's feasible that at a certain scale Uber's cut would make them profitable.
    - jsemrau 10y ago
      Feasible but not likely. From this 25% to 35% Uber will still do this 1. Run their operating business - Maintain data centers - Maintain a global web infrastructure - Maintain the app 2. Run campaigns to compete in markets with strong local competition - Europe (Hailo, Car2Go, etc) - Asia (Didi, Ola, Grab, etc) 3. Finance their ongoing operations - Equity financing expensive - Debt financing hard to get at this stage and cost money too 4. Hire and retain top talent 5. Legal fees and licensing 6. Rentals for global offices 7. Fund and maintain fleet businesses 8. Invest in R&D (self-driving technology & talent) 9. Entertain M&A So it looks they have a lot of costs on their plate which their operating business can not cover.
habosa 10y ago
Can you explain further what was wrong with the calculation? This number is widely reported and yours is the first refutation I've seen.
- harryh 10y ago
  The number was determined by looking at gross revenues (which is just Uber's cut of rides not the total that customers pay) and comparing it to corporate expenses (which is not the same thing as what it costs to deliver the rides). It's an almost non sensical calculation. The fact that it has been widely reported is a sad statement on the innumeracy of journalism.
  - randyrand 10y ago
    ^ to reiterate. This is a bit arbitrary since investor capital is not actually used this way, but the numbers would be: - 41% of Uber's corporate expenses are paid for by the customer, 59% by investors - 100% of non-corporate costs (driver, car, fuel, maintenance, etc) are paid for by the customer and 0% by investors. But this instead somehow got interpreted as "the customer only pays for 41% of the ride cost". Which is completely false.
    - harryh 10y ago
      That is an excellent explanation. Thank you. I will add that I suspect that some corporate expenses are going to the driver in the form of bonuses or minimum per hour earnings (Uber has had a lot incentive programs for drivers). This, kinda, goes to the cost of a ride. I have no idea how much money this is overall. A lot maybe.
hardtke 10y ago
Uber seems to offer quite generous bonuses to drivers who complete milestones (e.g. $600 bonus for 100 trips in a week, for instance). Every time I've chatted with a driver in Oakland, it seems that the bonuses are generally in the $5-7 per trip range. I've also been alone for many Uber Pool rides where I am nowhere close to being an economically viable passenger for the driver ($6 for a ride that costs the driver at least half an hour of time and requires more than 10 miles of driving).
- xapata 10y ago
  Pool is profitable on average, but low margin, so any particular ride is likely to be an expense. Much like how a casino loses money on 49% of slots sessions.
  - svachalek 10y ago
    Sliding off topic but I think that's more like 49% of pulls. The amount of time that it takes a slot machine to drive your odds of walking away richer down to hopeless levels is pretty short.
    - Retric 10y ago
      I have only played slots for a few hours, but my lifetime average is up ~3x and a few hundred dollars vs. what I put into the machines. So, I think they are set fairly close to break even as that's from a few dozen minor wins vs a single jackpot. Honestly, if every single time someone played for 3+ hours they where always down then fewer people would come back. That said, they probably set machines in very high traffic areas to terrible odds to catch as many suckers as possible.
      - throwawaysbdi 10y ago
        It's likely that the RNG's in slots don't produce uniformly distributed wins and losses except over long timeframes. A machine that's truly random will result in everyone losing money slowly and reliably after a large number of pulls. So not fun. A machine built to have the odds wander around over a period of time will be more unpredictable with a greater earnings spread
pm24601 10y ago
> Uber only counts their cut as revenue not the full cost of the ride. except that revenue != income. (http://smallbusiness.chron.com/net-sales-revenue-vs-net-income-59947.html http://smallbusiness.chron.com/net-sales-revenue-vs-net-inco... ) > Net sales, or net revenue, is the money a company gets from doing business with its customers. Net income is profit -- what's left over after the company has accounted for all its revenue, expenses, gains, losses, taxes and other obligations. Uber almost certainly counts the revenue. This is a standard silicon valley way of getting a higher VC valuation. This is important because if the money is flowing through Uber's pockets then Uber has the ability to adjust the diversion of revenue into income. ( and the VCs know this ) Look at the random silicon valley startup marketplace that reports how many millions of dollars they sold. All revenue - but the income may be pitiful.
- harryh 10y ago
  Uber almost certainly counts the revenue. This is a standard silicon valley way of getting a higher VC valuation. It does not, as you can plainly see if you look at the nakedcapitalism link. Revenue is a separate, and much smaller, number than total passenger payments.
deleted 10y ago
[deleted]
apsec112 10y ago
The nakedcapitalism post that started the 41% myth actually has enough info to calculate the real number, at least for 1H2015 (http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...) Farebox ratio = fares / total cost of operations Total cost of operations = fares - profits Farebox ratio = fares / (fares - profits) For 1H2015: Farebox ratio = 3,661 / (3,661 - -987) = 3661 / 4648 = 78.8%
- harryh 10y ago
  That is a somewhat reasonable answer. The reason that I don't consider it exactly correct is that the original claim was: "Uber passengers were paying only 41% of the actual cost of their trips." What you have calculated is that Uber passengers paid 78.8% of the cost of operating the company in 1H2015. The cost of operating the company isn't the same thing as the cost of all their trips. The company does a lot more than provide trips.
uptownfunk 10y ago
You know what, I may get downvoted for this, but my take is you just can't stop these guys. They'll do whatever it takes to win. I probably spend around $2,000 USD on uber trips per month. And frankly, as much disturbing stuff I hear about these guys, Uber beats the heck out of renting a car in a snowy area (especially after having taken a red-eye to a client site). It also beats the crap out of taking a cab in most places, I usually have to navigate to where I want to go and the taxis aren't as clean or the drivers as friendly. They could double the price, and as long as my company reimbursed it, I'd still take it, because they've just got it down so well. Lyft and the other competitors suffer from availability issues, and the average time it takes for a driver to get to me on Uber is much less than the other ride shares. They've got their product down pat, it's so well designed. What I don't support however is their workplace attitude towards women (whom I applaud for coming out about it, takes guts.) It's made me rethink using the service a few times, but when you've got a product that good and such a demanding schedule, the (sad?) truth is that you'll take whatever little comforts you can that make your life that much easier.
- alexryan 10y ago
  I too was very reluctant to let go of uber for the same reasons. It's difficult to let go of what is clearly an outstanding product. I also have mixed feelings about Kalanick. I love how bold and aggressive he has been in going to war with ossified privilege and wish that more entrepreneurs had his balls. But when I read Susan’s blog, I thought to myself “this cannot go unpunished.” The toxic culture has to be corrected, not just at uber but everywhere it exists. Creating a world in which our daughters will not have to experience what Susan experienced is far more important than the convenience of a great app. Unfortunately, people do not genuinely change their deeply ingrained habits unless and until they reach a pain threshold which compels them to change their core values. Uber needs to feel that pain right now for the greater good of everyone including uber. So I deleted uber and switched to using Lyft and, so far, the experience has been surprisingly good. It seems that the engineers at Lyft have done a really great job as well. I have found that, as a general rule, making the decision to do what is right even when it is uncomfortable is always the decision that leads to greater happiness.

by harryh 10y ago

viggity 10y ago

I know companies subsidize product costs to get larger market share, but subsidizing 59% seems a bit crazy.

harryh 10y ago
As I said, they aren't doing that.
- tantalor 10y ago
  So what's the real number?
  - harryh 10y ago
    AFAIK there is not enough publicly available data to answer this question.
    - thinkmilitant 10y ago
      Oh no! It's probably even worse then! /s
  - MagnumOpus 10y ago
    Payments cover 79% of the ride cost (if we assume that the ride cost should covers the driver's cut and raises Uber's EBT to zero).

beefman 10y ago

What is the correct percentage?

harryh 10y ago
AFAIK there is not enough publicly available data to answer this question. But total_corporate_revenue(1) / total_corporate_spend(2) is an almost nonsensical way to calculate that number. (1) which is not the same thing, at all, as the total amount customers are paying for rides (2) which is not the same thing, at all, as the cost of providing all uber rides
- peteretep 10y ago
  > (1) which is not the same thing, > at all, as the total amount customers > are paying for rides Why not?
  - harryh 10y ago
    Because they are two different numbers in the report in question. Maybe go look at it?
dx034 10y ago
Any percentage given is very misleading. In nearly all cases, Uber will make a profit when you take a ride. However, they built such an expensive company (huge R&D department, zillions of free coupons, ads everywhere) that they cannot pay for it without making a loss. If they suddenly had 10x as many rides or would shed coupons and R&D, they'd probably be profitable. But they'd also lose their edge they hope to have over Lyft & Co. NB: There are of course areas where they offer rides below the driver's cut, but that's probably rare after they exited China.

dantiberian 10y ago

Thanks, I've updated the post.

BurningFrog 10y ago

Also, that number must be Uber's total loss distributed per ride, rather than the profitability of each ride? I can't imagine that Uber loses money on each additional trip. If that was true, the boycotts are helping Uber!

comicjk 10y ago
The boycotts might help Uber's profits - by bringing them closer to zero - but that's irrelevant to Uber's goal of growing its user base.
dx034 10y ago
That's probably not how it works. Most of the rides itself will make some profit for Uber. However, Uber has huge fixed costs via free rides, ads, salaries, etc. These will create the loss. So if you have a coupon and use it, it's quite likely that Uber makes a loss. But for most other rides, the driver will usually get a bit less than what you pay. It's just not enough to cover the company costs.
- prostoalex 10y ago
  > However, Uber has huge fixed costs via free rides, ads, salaries, etc. These will create the loss. Would those be essential at this point? Seems like everyone who wants a ride-sharing app has one, so their marketing expense should be substantially down by now. Startups typically keep the salary expenses controllable by compensating via equity (which does not have to be reported as expense unless one is doing GAAP), so it seems that it should be under control as well.

TrainedMonkey 10y ago

Personal experience, so take it with a grain of salt. I've talked with 2-3 Uber drivers in LA area. They seem to be getting 65% to 75% of what passenger pays. I think many of the core Uber markets are fairly profitable. This would imply that majority of the burn is focused on growth in new markets. Some potential problems with extrapolating the data: * Small sample size. * Uber rides cost more in California, observed 65% to 75% might not hold in other mature markets.

harryh 10y ago
That is my suspicion as well though I will add that in addition to spending to grow in new markets they are also, quite obviously, spending a lot to develop self driving cars (possibly sometimes through nefarious means!). Unclear if you count that as "growth in new markets" or not.
passivepinetree 10y ago
I think you're misinterpreting what the post and the GP meant. What's at issue here isn't that Uber drivers don't get to take home X% of what the passenger pays, but rather that the cost Uber charges passengers isn't enough to keep the business afloat without a significant amount of VC funding.
- dcosson 10y ago
  I think the point of the comment was as kind of an upper bound. For instance if drivers made 100% (or more) of what the passenger pays, then Uber would be obviously not breaking even. At 65-75% it's feasible that at a certain scale Uber's cut would make them profitable.
  - jsemrau 10y ago
    Feasible but not likely. From this 25% to 35% Uber will still do this 1. Run their operating business - Maintain data centers - Maintain a global web infrastructure - Maintain the app 2. Run campaigns to compete in markets with strong local competition - Europe (Hailo, Car2Go, etc) - Asia (Didi, Ola, Grab, etc) 3. Finance their ongoing operations - Equity financing expensive - Debt financing hard to get at this stage and cost money too 4. Hire and retain top talent 5. Legal fees and licensing 6. Rentals for global offices 7. Fund and maintain fleet businesses 8. Invest in R&D (self-driving technology & talent) 9. Entertain M&A So it looks they have a lot of costs on their plate which their operating business can not cover.

habosa 10y ago

Can you explain further what was wrong with the calculation? This number is widely reported and yours is the first refutation I've seen.

harryh 10y ago
The number was determined by looking at gross revenues (which is just Uber's cut of rides not the total that customers pay) and comparing it to corporate expenses (which is not the same thing as what it costs to deliver the rides). It's an almost non sensical calculation. The fact that it has been widely reported is a sad statement on the innumeracy of journalism.
- randyrand 10y ago
  ^ to reiterate. This is a bit arbitrary since investor capital is not actually used this way, but the numbers would be: - 41% of Uber's corporate expenses are paid for by the customer, 59% by investors - 100% of non-corporate costs (driver, car, fuel, maintenance, etc) are paid for by the customer and 0% by investors. But this instead somehow got interpreted as "the customer only pays for 41% of the ride cost". Which is completely false.
  - harryh 10y ago
    That is an excellent explanation. Thank you. I will add that I suspect that some corporate expenses are going to the driver in the form of bonuses or minimum per hour earnings (Uber has had a lot incentive programs for drivers). This, kinda, goes to the cost of a ride. I have no idea how much money this is overall. A lot maybe.

hardtke 10y ago

Uber seems to offer quite generous bonuses to drivers who complete milestones (e.g. $600 bonus for 100 trips in a week, for instance). Every time I've chatted with a driver in Oakland, it seems that the bonuses are generally in the $5-7 per trip range. I've also been alone for many Uber Pool rides where I am nowhere close to being an economically viable passenger for the driver ($6 for a ride that costs the driver at least half an hour of time and requires more than 10 miles of driving).

xapata 10y ago
Pool is profitable on average, but low margin, so any particular ride is likely to be an expense. Much like how a casino loses money on 49% of slots sessions.
- svachalek 10y ago
  Sliding off topic but I think that's more like 49% of pulls. The amount of time that it takes a slot machine to drive your odds of walking away richer down to hopeless levels is pretty short.
  - Retric 10y ago
    I have only played slots for a few hours, but my lifetime average is up ~3x and a few hundred dollars vs. what I put into the machines. So, I think they are set fairly close to break even as that's from a few dozen minor wins vs a single jackpot. Honestly, if every single time someone played for 3+ hours they where always down then fewer people would come back. That said, they probably set machines in very high traffic areas to terrible odds to catch as many suckers as possible.
    - throwawaysbdi 10y ago
      It's likely that the RNG's in slots don't produce uniformly distributed wins and losses except over long timeframes. A machine that's truly random will result in everyone losing money slowly and reliably after a large number of pulls. So not fun. A machine built to have the odds wander around over a period of time will be more unpredictable with a greater earnings spread

pm24601 10y ago

> Uber only counts their cut as revenue not the full cost of the ride. except that revenue != income. (http://smallbusiness.chron.com/net-sales-revenue-vs-net-income-59947.html http://smallbusiness.chron.com/net-sales-revenue-vs-net-inco... ) > Net sales, or net revenue, is the money a company gets from doing business with its customers. Net income is profit -- what's left over after the company has accounted for all its revenue, expenses, gains, losses, taxes and other obligations. Uber almost certainly counts the revenue. This is a standard silicon valley way of getting a higher VC valuation. This is important because if the money is flowing through Uber's pockets then Uber has the ability to adjust the diversion of revenue into income. ( and the VCs know this ) Look at the random silicon valley startup marketplace that reports how many millions of dollars they sold. All revenue - but the income may be pitiful.

harryh 10y ago
Uber almost certainly counts the revenue. This is a standard silicon valley way of getting a higher VC valuation. It does not, as you can plainly see if you look at the nakedcapitalism link. Revenue is a separate, and much smaller, number than total passenger payments.

deleted 10y ago

[deleted]

apsec112 10y ago

The nakedcapitalism post that started the 41% myth actually has enough info to calculate the real number, at least for 1H2015 (http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...) Farebox ratio = fares / total cost of operations Total cost of operations = fares - profits Farebox ratio = fares / (fares - profits) For 1H2015: Farebox ratio = 3,661 / (3,661 - -987) = 3661 / 4648 = 78.8%

harryh 10y ago
That is a somewhat reasonable answer. The reason that I don't consider it exactly correct is that the original claim was: "Uber passengers were paying only 41% of the actual cost of their trips." What you have calculated is that Uber passengers paid 78.8% of the cost of operating the company in 1H2015. The cost of operating the company isn't the same thing as the cost of all their trips. The company does a lot more than provide trips.

uptownfunk 10y ago

You know what, I may get downvoted for this, but my take is you just can't stop these guys. They'll do whatever it takes to win. I probably spend around $2,000 USD on uber trips per month. And frankly, as much disturbing stuff I hear about these guys, Uber beats the heck out of renting a car in a snowy area (especially after having taken a red-eye to a client site). It also beats the crap out of taking a cab in most places, I usually have to navigate to where I want to go and the taxis aren't as clean or the drivers as friendly. They could double the price, and as long as my company reimbursed it, I'd still take it, because they've just got it down so well. Lyft and the other competitors suffer from availability issues, and the average time it takes for a driver to get to me on Uber is much less than the other ride shares. They've got their product down pat, it's so well designed. What I don't support however is their workplace attitude towards women (whom I applaud for coming out about it, takes guts.) It's made me rethink using the service a few times, but when you've got a product that good and such a demanding schedule, the (sad?) truth is that you'll take whatever little comforts you can that make your life that much easier.

alexryan 10y ago
I too was very reluctant to let go of uber for the same reasons. It's difficult to let go of what is clearly an outstanding product. I also have mixed feelings about Kalanick. I love how bold and aggressive he has been in going to war with ossified privilege and wish that more entrepreneurs had his balls. But when I read Susan’s blog, I thought to myself “this cannot go unpunished.” The toxic culture has to be corrected, not just at uber but everywhere it exists. Creating a world in which our daughters will not have to experience what Susan experienced is far more important than the convenience of a great app. Unfortunately, people do not genuinely change their deeply ingrained habits unless and until they reach a pain threshold which compels them to change their core values. Uber needs to feel that pain right now for the greater good of everyone including uber. So I deleted uber and switched to using Lyft and, so far, the experience has been surprisingly good. It seems that the engineers at Lyft have done a really great job as well. I have found that, as a general rule, making the decision to do what is right even when it is uncomfortable is always the decision that leads to greater happiness.