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Does anyone have any idea why Uber isn't profitable? I never really understood that. It's such a ubiquitous service in a large portion of the world. It seems t

Does anyone have any idea why Uber isn't profitable? I never really understood that. It's such a ubiquitous service in a large portion of the world. It seems to me that they have a lot of physical growth, so what is happening to their finances?

btgeekboy 7y ago
They’re trading cash to build their moat (keeping out competitors, investing in self-driving). From what I can tell, at least.
- ForHackernews 7y ago
  That's the theory, but I have no idea what this "moat" is supposed to be. Apps to hail a cab are interchangeable commodities as far as I can tell.
  - criddell 7y ago
    > Apps to hail a cab are interchangeable commodities as far as I can tell. That's what I keep getting stuck on. It's getting easier to compete with Uber and I don't think that's going to change. They have a well known brand but even that feels like it's on verge of becoming genericized.
    - sethhochberg 7y ago
      Right now it wouldn't surprise me if a lot of Uber inertia was specifically because their competitors are smaller and more localized. I live in NYC, and there are half-dozen major rideshare apps here in some form - but I often travel to places where, if there is any major service operating there at all, its Uber... maybe Lyft, but certainly not Via or Juno or Gett or any other smaller names. I don't want to load my phone up with a bunch of different apps and give my data to a bunch of different companies, so guess which app I use even at home where I have plenty of options? Uber. The barrier to entry of getting a new local competitor up and running is small, but the convenience of being able to stick with one provider no matter where you are is big.
      - projektfu 7y ago
        I never ride Uber at home but there are some places where it's so entrenched (e.g. Mexico) that there are no real competitor apps. On the other hand, I've gotten better deals there from taxis and they've been more reliable. You can often look up a ride on Uber and negotiate with a taxi driver right then and there. If you don't speak Spanish, though...
  - Scoundreller 7y ago
    There's a network effect component for shared/pooled rides. Upstarts will lose a lot if they offer shared prices without matched riders.
    - jcims 7y ago
      Do that many people share rides with strangers in Uber? I never have.
      - aianus 7y ago
        I can tell you that as a driver, about ~25% of my ride requests in Toronto are Pool requests. We also have Express Pool where you get picked up / dropped off at some walkable distance from your actual origin/destination to make it even cheaper for the consumer and more efficient for drivers. At one point Uber was even competing with the bus / streetcar with a special ride type where you would have to be picked up or dropped off at specific points along one street but they discontinued this. I would definitely consider these sorts of shared rides as a moat.
        jcims 7y ago
        This is great info, thank you and i agree with your conclusion.
        Scoundreller 7y ago
        I thought that promo was only during a weekend subway shutdown. Just looked at an Uber trip in Toronto, and the breakdown is: Express Pool: $8.44 Pool: $11.25 UberX: $17.38
      - andromeduck 7y ago
        It's often about a third cheaper and some people get it as part of commuter bennifits in leiu of parking.
      - williamDafoe 7y ago
        RU kidding Uber pool and Lyft line rides are often cheaper than public transportation!
yaseer 7y ago
They have to offer significant promotions and sell their rides below the rates of other taxi companies, in order to obtain market share. They've been doing this to grab market share for the last decade. Undercutting competition is not a profitable business.
jjn2009 7y ago
Its partially because they are in a war of attrition.
MiroF 7y ago
You literally cannot profitably transport people at the prices they're offering. Uber is just one big bet that the price point of transportation will fall significantly with the advent of self driving and they'll be there to make the money off that margin.
- randyrand 7y ago
  They do make profit on each ride, but not when you account for administrative overhead (which is huge because of their ridiculous headcount).
  - aetherson 7y ago
    Let's split the difference: They make profit from some rides. And the amount of profit matters, too.
  - the_narrator 7y ago
    Which would mean they do _not_ make a profit on each ride.
    - davidivadavid 7y ago
      Charitable interpretation is that the parent is talking about Uber's gross margin, which is presumably fairly high.
    - twic 7y ago
      randyrand is talking about gross margin; you're thinking about earnings. You can have a positive gross margin and negative earnings. There's no point arguing about whether this does or does not constitute making a profit in some absolute sense - just understand that both are true.
- davinic 7y ago
  Why would they care about self-driving if most of their drivers are making little more than the cost of operating their vehicle?
Analemma_ 7y ago
Most Uber rides are priced below cost to try and drive growth. Or at least, that was the original story they told. Lately it seems more like “Uber rides are priced below cost, because if we price them any higher users will flee to a different ride-hailing service, because we have no lock-in or switching costs”. Uber’s entire business model is selling dollar bills for 90 cents and it’s all going to come apart shortly.
- formercoder 7y ago
  I wonder if there's a predatory pricing case there
  - criddell 7y ago
    I don't think so because they have a positive gross margin.
xienze 7y ago
> It seems to me that they have a lot of physical growth, so what is happening to their finances? This is the story of just about every Valley startup. Seemingly greater losses the larger the userbase grows. When asking how this is possible, everyone will answer "you just don't understand, this is a good thing."
jumbopapa 7y ago
There's nothing that sets them apart from competitors so it's a race to the bottom. If you're a rider you're always going to go to who has the best price and if you're a driver you're going to go to who pays you the most. If they ever hope to be profitable they need to cut labor costs or have a distinguishing factor.
bobthepanda 7y ago
People like comparing Uber to, say, Amazon. The major difference is that Amazon benefitted from economies of scale - they spent a lot of time in the red building infrastructure and logistics, but now they reap the benefits by having very good infrastructure and logistics, which only get more efficient the more things they sell. Uber's main expense is the driver. The vehicles pretty much always stay the same size so they don't actually benefit from economies of scale. And drivers (and customers) are fickle; most drivers and customers have more than one app on their phone. If Uber hikes prices or slashes driver compensation people will just leave. Uber has a growth story if you believe that AVs are just around the corner, but that's a pretty big if. Uber mostly made it to the IPO with the help of Softbank, one of if not its largest shareholders. Softbank had a $100B Vision Fund. With that kind of money you could be unprofitable for a while and still be a going concern.
- ronaru 7y ago
  Amazon was cash flow positive after few years of existence. Uber, as far as I under stand, is still isn't. https://www.reuters.com/article/us-uber-ipo-breakingviews/breakingviews-ubers-losses-are-nothing-like-young-amazons-idUSKCN1SE2RQ https://www.reuters.com/article/us-uber-ipo-breakingviews/br...
- snarf21 7y ago
  Well, Amazon also is focused on disinter-mediating everyone. Those people's margins are Amazon's opportunity. Even now they are increasing their fleet into someone else's margins, go check out the Cincinnati airport.
- femto113 7y ago
  The view that "Uber's main expense is the driver" is essentially backwards. The current economics are more akin to drivers paying Uber to find them business. Drivers pay for all of the physical expenses of a ride (like gas, maintenance, depreciation and financing charges) and provide all of the labor. Since it would almost certainly cost Uber much more to buy the vehicles, pay for the gas and hire the drivers as employees it is fairer to say "Uber's main income source is drivers". AV only offers a growth story if you believe the drivers' earnings are high enough to more than cover the additional costs to Uber of buying, fueling, and maintaining the AV fleet. With AV prices likely to be significantly higher than traditional vehicles for the foreseeable future and since most studies show drivers' net income near minimum wages this seems pretty unlikely to me.
Tiktaalik 7y ago
It's a grift that will never be profitable.
omarhaneef 7y ago
The best way to understand this is to look at their financial statements: https://investor.uber.com/news-events/news/press-release-details/2019/Uber-Q1-2019-Earnings/ https://investor.uber.com/news-events/news/press-release-det... Generally, you would go to the 10-K to get a quick snap shot. I direct you to look at the "CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS" You can see that they made about 1.4B (in Q1) after paying the drivers but then they spent 2.2B on: Operations and support, Sales and marketing, Research and development, General and administrative Note, of these categories, Sales and Marketing was the largest and eliminating it completely (not recommending this) would get them to break even.
- davewritescode 7y ago
  Agreed, but like others have pointed out “marketing” includes marketing to drivers with incentives to drive. They’re not running advertisements they’re subsidizing rides on the driver and passenger side and calling it part of their marketing spend. The problem with Uber is that their technology isn’t that innovative and their platform isn’t that sticky.
  - rlanday 7y ago
    The technology only seems "not that innovative" because they've been around for a decade. The whole concept wouldn't be possible without widespread smartphone adoption which occurred in that time. The real problem with the business is the economics don't work. Riders use Uber because it's cheap and driver use it because they get paid enough to make it worth their while (or at least they believe that to be the case). These two things are only the case because they're blowing billions of dollars on subsidies.
goobynight 7y ago
A lot of people use it because it's so obvious that they're operating at a loss. That's why the ride is so cheap. If they brought prices up to what they "should" be, volume would go down or the competition would snatch it up. If Uber wants to take a loss on my ride, I'll be there every time.
- JumpCrisscross 7y ago
  > If they brought prices up to what they "should" be, volume would go down or the competition would snatch it up Last I checked, Uber made money on each ride in New York and San Francisco. The model can make money. I just don't know if it can make money everywhere.
- dheera 7y ago
  ... and if they brought prices up to what they "should" be, I'll just use Lyft. Or if that isn't an option, get to my destination on my own.
  - ghaff 7y ago
    Lyft is in the same boat--or arguably worse. I fully expect these services will see significant price increases. One of the consequences will be that both the driver and passenger sides of the network will thin out, which probably means they won't work as well in less-dense areas.
quickthrower2 7y ago
Drug dealers have been known to sell drugs to someone new cheap (perhaps at a loss) to get them hooked, and then once they are hooked jack the price up. Uber is trying to do that with transport.
- sarah180 7y ago
  Do you have a cite for that? I'm skeptical that there are a lot of "I don't know you, have some free drugs" organized loss-leader operations happening. I suspect this is actually mostly propaganda and exaggeration, and that the actual practice—to the extent it exists—is more like offering a small sample to a well-known existing customer.
  - UncleEntity 7y ago
    > Do you have a cite for that? I have first hand experience that this does indeed happen... Drug dealers have a desire to expand their customer base just as much as any other small business but have very limited ways in which to do so.
  - flukus 7y ago
    You're suspicions are correct IME. Direct marketing isn't an option for illegal substances, you have to know someone that knows someone, otherwise the police would just wander around all day waiting for offers. Also at the leaf nodes of distribution there is unlikely to be enough cash reserves to be offering free product or even small samples, the leaf nodes are generally users themselves. Mostly it seems to be propaganda that drugs can be addictive after a single hit, which is complete BS.
- colinmhayes 7y ago
  What happens when the consumer realizes this drug dealer has jacked up prices because they're giving product away? They go to the corner and find a cheaper alternative.
  - quickthrower2 7y ago
    Uber wants to be the only dealer in town.

btgeekboy 7y ago

They’re trading cash to build their moat (keeping out competitors, investing in self-driving). From what I can tell, at least.

ForHackernews 7y ago
That's the theory, but I have no idea what this "moat" is supposed to be. Apps to hail a cab are interchangeable commodities as far as I can tell.
- criddell 7y ago
  > Apps to hail a cab are interchangeable commodities as far as I can tell. That's what I keep getting stuck on. It's getting easier to compete with Uber and I don't think that's going to change. They have a well known brand but even that feels like it's on verge of becoming genericized.
  - sethhochberg 7y ago
    Right now it wouldn't surprise me if a lot of Uber inertia was specifically because their competitors are smaller and more localized. I live in NYC, and there are half-dozen major rideshare apps here in some form - but I often travel to places where, if there is any major service operating there at all, its Uber... maybe Lyft, but certainly not Via or Juno or Gett or any other smaller names. I don't want to load my phone up with a bunch of different apps and give my data to a bunch of different companies, so guess which app I use even at home where I have plenty of options? Uber. The barrier to entry of getting a new local competitor up and running is small, but the convenience of being able to stick with one provider no matter where you are is big.
    - projektfu 7y ago
      I never ride Uber at home but there are some places where it's so entrenched (e.g. Mexico) that there are no real competitor apps. On the other hand, I've gotten better deals there from taxis and they've been more reliable. You can often look up a ride on Uber and negotiate with a taxi driver right then and there. If you don't speak Spanish, though...
- Scoundreller 7y ago
  There's a network effect component for shared/pooled rides. Upstarts will lose a lot if they offer shared prices without matched riders.
  - jcims 7y ago
    Do that many people share rides with strangers in Uber? I never have.
    - aianus 7y ago
      I can tell you that as a driver, about ~25% of my ride requests in Toronto are Pool requests. We also have Express Pool where you get picked up / dropped off at some walkable distance from your actual origin/destination to make it even cheaper for the consumer and more efficient for drivers. At one point Uber was even competing with the bus / streetcar with a special ride type where you would have to be picked up or dropped off at specific points along one street but they discontinued this. I would definitely consider these sorts of shared rides as a moat.
      - jcims 7y ago
        This is great info, thank you and i agree with your conclusion.
      - Scoundreller 7y ago
        I thought that promo was only during a weekend subway shutdown. Just looked at an Uber trip in Toronto, and the breakdown is: Express Pool: $8.44 Pool: $11.25 UberX: $17.38
    - andromeduck 7y ago
      It's often about a third cheaper and some people get it as part of commuter bennifits in leiu of parking.
    - williamDafoe 7y ago
      RU kidding Uber pool and Lyft line rides are often cheaper than public transportation!

yaseer 7y ago

They have to offer significant promotions and sell their rides below the rates of other taxi companies, in order to obtain market share. They've been doing this to grab market share for the last decade. Undercutting competition is not a profitable business.

jjn2009 7y ago

Its partially because they are in a war of attrition.

MiroF 7y ago

You literally cannot profitably transport people at the prices they're offering. Uber is just one big bet that the price point of transportation will fall significantly with the advent of self driving and they'll be there to make the money off that margin.

randyrand 7y ago
They do make profit on each ride, but not when you account for administrative overhead (which is huge because of their ridiculous headcount).
- aetherson 7y ago
  Let's split the difference: They make profit from some rides. And the amount of profit matters, too.
- the_narrator 7y ago
  Which would mean they do _not_ make a profit on each ride.
  - davidivadavid 7y ago
    Charitable interpretation is that the parent is talking about Uber's gross margin, which is presumably fairly high.
  - twic 7y ago
    randyrand is talking about gross margin; you're thinking about earnings. You can have a positive gross margin and negative earnings. There's no point arguing about whether this does or does not constitute making a profit in some absolute sense - just understand that both are true.
davinic 7y ago
Why would they care about self-driving if most of their drivers are making little more than the cost of operating their vehicle?

Analemma_ 7y ago

Most Uber rides are priced below cost to try and drive growth. Or at least, that was the original story they told. Lately it seems more like “Uber rides are priced below cost, because if we price them any higher users will flee to a different ride-hailing service, because we have no lock-in or switching costs”. Uber’s entire business model is selling dollar bills for 90 cents and it’s all going to come apart shortly.

formercoder 7y ago
I wonder if there's a predatory pricing case there
- criddell 7y ago
  I don't think so because they have a positive gross margin.

xienze 7y ago

> It seems to me that they have a lot of physical growth, so what is happening to their finances? This is the story of just about every Valley startup. Seemingly greater losses the larger the userbase grows. When asking how this is possible, everyone will answer "you just don't understand, this is a good thing."

jumbopapa 7y ago

There's nothing that sets them apart from competitors so it's a race to the bottom. If you're a rider you're always going to go to who has the best price and if you're a driver you're going to go to who pays you the most. If they ever hope to be profitable they need to cut labor costs or have a distinguishing factor.

bobthepanda 7y ago

People like comparing Uber to, say, Amazon. The major difference is that Amazon benefitted from economies of scale - they spent a lot of time in the red building infrastructure and logistics, but now they reap the benefits by having very good infrastructure and logistics, which only get more efficient the more things they sell. Uber's main expense is the driver. The vehicles pretty much always stay the same size so they don't actually benefit from economies of scale. And drivers (and customers) are fickle; most drivers and customers have more than one app on their phone. If Uber hikes prices or slashes driver compensation people will just leave. Uber has a growth story if you believe that AVs are just around the corner, but that's a pretty big if. Uber mostly made it to the IPO with the help of Softbank, one of if not its largest shareholders. Softbank had a $100B Vision Fund. With that kind of money you could be unprofitable for a while and still be a going concern.

ronaru 7y ago
Amazon was cash flow positive after few years of existence. Uber, as far as I under stand, is still isn't. https://www.reuters.com/article/us-uber-ipo-breakingviews/breakingviews-ubers-losses-are-nothing-like-young-amazons-idUSKCN1SE2RQ https://www.reuters.com/article/us-uber-ipo-breakingviews/br...
snarf21 7y ago
Well, Amazon also is focused on disinter-mediating everyone. Those people's margins are Amazon's opportunity. Even now they are increasing their fleet into someone else's margins, go check out the Cincinnati airport.
femto113 7y ago
The view that "Uber's main expense is the driver" is essentially backwards. The current economics are more akin to drivers paying Uber to find them business. Drivers pay for all of the physical expenses of a ride (like gas, maintenance, depreciation and financing charges) and provide all of the labor. Since it would almost certainly cost Uber much more to buy the vehicles, pay for the gas and hire the drivers as employees it is fairer to say "Uber's main income source is drivers". AV only offers a growth story if you believe the drivers' earnings are high enough to more than cover the additional costs to Uber of buying, fueling, and maintaining the AV fleet. With AV prices likely to be significantly higher than traditional vehicles for the foreseeable future and since most studies show drivers' net income near minimum wages this seems pretty unlikely to me.

Tiktaalik 7y ago

It's a grift that will never be profitable.

omarhaneef 7y ago

The best way to understand this is to look at their financial statements: https://investor.uber.com/news-events/news/press-release-details/2019/Uber-Q1-2019-Earnings/ https://investor.uber.com/news-events/news/press-release-det... Generally, you would go to the 10-K to get a quick snap shot. I direct you to look at the "CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS" You can see that they made about 1.4B (in Q1) after paying the drivers but then they spent 2.2B on: Operations and support, Sales and marketing, Research and development, General and administrative Note, of these categories, Sales and Marketing was the largest and eliminating it completely (not recommending this) would get them to break even.

davewritescode 7y ago
Agreed, but like others have pointed out “marketing” includes marketing to drivers with incentives to drive. They’re not running advertisements they’re subsidizing rides on the driver and passenger side and calling it part of their marketing spend. The problem with Uber is that their technology isn’t that innovative and their platform isn’t that sticky.
- rlanday 7y ago
  The technology only seems "not that innovative" because they've been around for a decade. The whole concept wouldn't be possible without widespread smartphone adoption which occurred in that time. The real problem with the business is the economics don't work. Riders use Uber because it's cheap and driver use it because they get paid enough to make it worth their while (or at least they believe that to be the case). These two things are only the case because they're blowing billions of dollars on subsidies.

goobynight 7y ago

A lot of people use it because it's so obvious that they're operating at a loss. That's why the ride is so cheap. If they brought prices up to what they "should" be, volume would go down or the competition would snatch it up. If Uber wants to take a loss on my ride, I'll be there every time.

JumpCrisscross 7y ago
> If they brought prices up to what they "should" be, volume would go down or the competition would snatch it up Last I checked, Uber made money on each ride in New York and San Francisco. The model can make money. I just don't know if it can make money everywhere.
dheera 7y ago
... and if they brought prices up to what they "should" be, I'll just use Lyft. Or if that isn't an option, get to my destination on my own.
- ghaff 7y ago
  Lyft is in the same boat--or arguably worse. I fully expect these services will see significant price increases. One of the consequences will be that both the driver and passenger sides of the network will thin out, which probably means they won't work as well in less-dense areas.

quickthrower2 7y ago

Drug dealers have been known to sell drugs to someone new cheap (perhaps at a loss) to get them hooked, and then once they are hooked jack the price up. Uber is trying to do that with transport.

sarah180 7y ago
Do you have a cite for that? I'm skeptical that there are a lot of "I don't know you, have some free drugs" organized loss-leader operations happening. I suspect this is actually mostly propaganda and exaggeration, and that the actual practice—to the extent it exists—is more like offering a small sample to a well-known existing customer.
- UncleEntity 7y ago
  > Do you have a cite for that? I have first hand experience that this does indeed happen... Drug dealers have a desire to expand their customer base just as much as any other small business but have very limited ways in which to do so.
- flukus 7y ago
  You're suspicions are correct IME. Direct marketing isn't an option for illegal substances, you have to know someone that knows someone, otherwise the police would just wander around all day waiting for offers. Also at the leaf nodes of distribution there is unlikely to be enough cash reserves to be offering free product or even small samples, the leaf nodes are generally users themselves. Mostly it seems to be propaganda that drugs can be addictive after a single hit, which is complete BS.
colinmhayes 7y ago
What happens when the consumer realizes this drug dealer has jacked up prices because they're giving product away? They go to the corner and find a cheaper alternative.
- quickthrower2 7y ago
  Uber wants to be the only dealer in town.