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If 95% of their customers left, then 5% of their customers would remain and... Well, if they shut off 95% of their servers... Are we profitable yet?

by freyir 9y ago

dfcowell 9y ago
Nope. They're subsidizing most trips in order to keep prices low. Their profitability problem isn't just one of opex. They don't have margin, either.
- tedsanders 9y ago
  Can you provide a source for this? I'm honestly very curious. I've seen this claim bandied about for years, but I've never seen a source that verifies it. Is Uber really losing money on a marginal basis in developed markets?
  - dfcowell 9y ago
    Here's an article with citations from November of last year. Note that it does use data from 2015, since at the time that was the most recent publicly-available published data. http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html#_edn4 http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
    - tedsanders 9y ago
      Thanks, this is terrific. My main takeway: revenues are higher than their cost of sales. In other words, they are earning money on marginal rides served. Not losing money. To me, this suggests that profitability is plausibly achievable if they end subsidies into small markets and drastically cut development costs.
- logicallee 9y ago
  obviously the least price-sensitive 5% would remain. it's not like they're running currency exchange or something - people don't have a super set demand curve. maybe 95% of their customers do, but not 100% of their customers... (unlike a currency exchange, for example, which would drop to precisely 0 users worldwide if it increased prices by just 10%, since 100% of any such users are super price-sensitive. likewise if a currency exchange subsidized exchanges by 10% it would have more users the next day - by far - than people on Earth. easily a trillion "users", or whatever the rate limit is for signing up and performing exchanges. try to visualize these two different demand curves and you will see that Uber should still have some users if they raise their prices, because not all of them are completely price sensitive and only use it because it subsidizes rides, and not for any brand or convenience reasons. unlike a commodity currency exchange which exists under ironclad demand curves that drop to 0 if you move along it even slightly. picture these curves.)
ghaff 9y ago
It's probably eminently practical for a company of this type to cherry pick the most profitable core areas of the most profitable urban areas. Which is effectively what services like Instacart do. But it's not scalable and won't command a high valuation.
PhasmaFelis 9y ago
Just making a profit isn't enough; they need to make a big profit. Kalanick could probably turn a profit if he fired the whole company and drove a cab himself, but that's not gonna placate the investors who sunk hundreds of millions into it.

If 95% of their customers left, then 5% of their customers would remain and... Well, if they shut off 95% of their servers... Are we profitable yet?

by freyir 9y ago

If 95% of their customers left, then 5% of their customers would remain and... Well, if they shut off 95% of their servers... Are we profitable yet?

dfcowell 9y ago

Nope. They're subsidizing most trips in order to keep prices low. Their profitability problem isn't just one of opex. They don't have margin, either.

tedsanders 9y ago
Can you provide a source for this? I'm honestly very curious. I've seen this claim bandied about for years, but I've never seen a source that verifies it. Is Uber really losing money on a marginal basis in developed markets?
- dfcowell 9y ago
  Here's an article with citations from November of last year. Note that it does use data from 2015, since at the time that was the most recent publicly-available published data. http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html#_edn4 http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
  - tedsanders 9y ago
    Thanks, this is terrific. My main takeway: revenues are higher than their cost of sales. In other words, they are earning money on marginal rides served. Not losing money. To me, this suggests that profitability is plausibly achievable if they end subsidies into small markets and drastically cut development costs.
logicallee 9y ago
obviously the least price-sensitive 5% would remain. it's not like they're running currency exchange or something - people don't have a super set demand curve. maybe 95% of their customers do, but not 100% of their customers... (unlike a currency exchange, for example, which would drop to precisely 0 users worldwide if it increased prices by just 10%, since 100% of any such users are super price-sensitive. likewise if a currency exchange subsidized exchanges by 10% it would have more users the next day - by far - than people on Earth. easily a trillion "users", or whatever the rate limit is for signing up and performing exchanges. try to visualize these two different demand curves and you will see that Uber should still have some users if they raise their prices, because not all of them are completely price sensitive and only use it because it subsidizes rides, and not for any brand or convenience reasons. unlike a commodity currency exchange which exists under ironclad demand curves that drop to 0 if you move along it even slightly. picture these curves.)

ghaff 9y ago

It's probably eminently practical for a company of this type to cherry pick the most profitable core areas of the most profitable urban areas. Which is effectively what services like Instacart do. But it's not scalable and won't command a high valuation.

PhasmaFelis 9y ago

Just making a profit isn't enough; they need to make a big profit. Kalanick could probably turn a profit if he fired the whole company and drove a cab himself, but that's not gonna placate the investors who sunk hundreds of millions into it.