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This feels like an odd question to ask, but are they losing money faster or slower now? They were previously spending billions in marketing costs, and it sounde

This feels like an odd question to ask, but are they losing money faster or slower now? They were previously spending billions in marketing costs, and it sounded like at least some rides were a net loss.

djannzjkzxn 7y ago
People would say things like “losing money on every ride” but this didn’t appear to be correct based on the released financials. It was more like “making some money on rides overall, but spending tons of money on overhead”. Losing ride volume only makes that situation worse.
- MiroF 7y ago
  But that overhead was largely marketing and they bundled discount prices into marketing expenses.
  - djannzjkzxn 7y ago
    If you look at the Uber 2019 annual report, page 64, you can see that revenue was $14.1B, cost of revenue was $7.1B, and sales and marketing was $4.6B. $14.1B - $7.1B - $4.6B = $2.4B Driver bonuses fall under cost of revenue, and user promotions fall under sales and marketing. It’s only after subtracting other overhead that the company becomes unprofitable. Other overhead includes operations and support, research and development, and general administrative. If you read the descriptions of these categories it becomes apparent that they are going to need to lay people off if they cut spending there. Sales and marketing also includes a lot of headcount. All the above math includes both rides and eats. There are other numbers in the annual report that show that rides is making more money overall while other areas are losing more.
    - yashap 7y ago
      For those wondering where the rest of the $$$ went, the main other costs were about $5.8 billion to R&D, and $3.3 billion to “General and Administrative.” Although, R&D costs were very inflated in Q2, due to stock payouts and whatnot related to the IPO, in the other quarters R&D costs were well below Sales and Marketing. So normally “cost of revenue” and “sales and marketing” would be the top two categories, then R&D. Realistically, they need to cut from pretty much everywhere, especially with revenue tanking during COVID. Even without that one-time IPO related payout of about $3.6 billion last year, they still would’ve burnt ~$5 billion. Their losses this year, with massively decreased revenue due to COVID, could probably be $10+ billion (if they didn’t lay people off). That’d be for non-IPO costs staying static while revenue drops ~35%. And I believe their nest egg is only ~$10 billion, so that’s very roughly around 1 year of runway, much too short. They need to cut a LOT of costs.
    - three_seagrass 7y ago
      In 2019, Uber's selling and gen admin costs were $7.9B though, which was more than their gross profits of $6.9B.
- lmilcin 7y ago
  By your definition many successful companies would be performing poorly as they immediately invest all their profits. Marketing is an investment, because the benefits of marketing are in the future and are aimed at increasing business.
  - sfifs 7y ago
    You're getting downvoted but GAAP treatment aside it's actually an interesting business question. It's often useful to think of marketing expenses on a continuum between "upper funnel" and "lower funnel". "Upper funnel" expenses tend to be more like investments (Brand TV advertising).Lower funnel tend to be more like "cost of sales" (promotion to buy more). Marketing spends on direct user acquisition tends to fall somewhere in the middle and that's where the whole controversy lies. One could argue as many start-ups have done that only if you acquire users aggressively will your future growth come and hence the spend is more "investment like". One could also argue that consumers are disloyal and will take their business to whatever "good enough" competitor exists that offers better value. A few decades of academic research in buyer behavior suggests that the latter is the norm in consumer facing industries (soaps, corn flakes, hotels, air tickets...). Purchase behavior in these industries tend to follow very well defined patterns (NBD-Dirichlet) but of course network effects, patents and regulatory capture can up-end this (Google, Facebook Comcast, eInk Corp...) In many ways, the marketing models of Uber and similar startups are bets that network effects break the patterns.
    - lmilcin 7y ago
      I think "fake it till you make it" is a proven, successful marketing strategy aimed at bringing actual business later on. When investors bring money they don't necessarily need to have profits immediately, it is ok to risk some of it for promise of future benefits (that is very definition of investing). I understand subsidizing rides might be questionable way of doing this, but do not mistake it for invalid business model. Employing children from poor asian countries to produce clothes you are selling is questionable but it sure as hell is profitable unless we collectively decide to make it unprofitable by outlawing or penalizing it in some other way. In the end, if we think rides should not be subsidized or maybe drivers should be paid enough to have a living there is nothing stopping us from electing reputable representatives that can be trusted to do just that.
ceohockey60 7y ago
Based on my observation of Uber and similar businesses, they are likely losing money slower during this downturn, and this layoff will help preserve more needed cash. Less rides means less revenue but also less cloud compute cost to serve them, payout to drivers, and certainly no driver subsidies at this point, which during normal times is quite costly. Many of these are variable costs tied to ride volume. The only major fix costs to operating Uber's ridesharing business is people, office commercial leases, and maintaining IT infrastructure (I believe Uber operates its own cloud, but not 100% sure). And now it's cutting the "people" part to preserve more cash for the long-haul.
- 1MoreThing 7y ago
  According to their last earnings call, Uber's rides business was making enough profit paying for all of R&D costs. It's been a long time since the "losing money on every ride" narrative was true.
  - arcticbull 7y ago
    Weren't the massive quantity of discounts required to entice people to use them factored into marketing? Further I believe they counted the entire price of a shared ride as "revenue" while they only counted 30% of regular rides, even though shared rides likely made them even less money? That would restore the narrative.
    - georgespencer 7y ago
      Their annual report[1] shows 2019 revenue of $14.1bn, with cost of revenue of $7.2bn and sales and marketing costs of $4.6bn. Both cost of revenue and sales and marketing (for simplicity's sake I'll call these "direct costs") grew proportionately to revenue growth year on year from 2018 to 2019, running at 77% of revenue in 2018 and 83% of revenue in 2019. The 5% swing there is almost purely marketing: cost of revenue was 49.8% of revenue in 2018 and 50.9% in 2019, whereas marketing grew from 27.9% to 32.6%. So they could be hiding subsidies (prefer this term to discounts) in marketing costs, although it's not such a significant figure that it loses them money. It's conceivable that they're still doing some hocus pocus with the treatment of pool revenue, but it would have to be a significant portion of their revenue for it to have an impact. I can't find the disclosures on this if they're in there (although they do disclose that they treat three people pooling as three rides, which seems fair enough). The business suffered a 2.8x increase in losses from operations -- $8.5bn up from $3bn -- but this appears to mainly be attributable to R&D costs growing from $1.5bn to $4.8bn YOY. [1] https://investor.uber.com/news-events/news/press-release-details/2020/Uber-Announces-Results-for-Fourth-Quarter-and-Full-Year-2019/ https://investor.uber.com/news-events/news/press-release-det...
deleted 7y ago
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paxys 7y ago
Likely faster, considering the largest cost (employee salaries) is staying fixed. Which is probably what triggered these layoffs.
deleted 7y ago
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djannzjkzxn 7y ago

People would say things like “losing money on every ride” but this didn’t appear to be correct based on the released financials. It was more like “making some money on rides overall, but spending tons of money on overhead”. Losing ride volume only makes that situation worse.

MiroF 7y ago
But that overhead was largely marketing and they bundled discount prices into marketing expenses.
- djannzjkzxn 7y ago
  If you look at the Uber 2019 annual report, page 64, you can see that revenue was $14.1B, cost of revenue was $7.1B, and sales and marketing was $4.6B. $14.1B - $7.1B - $4.6B = $2.4B Driver bonuses fall under cost of revenue, and user promotions fall under sales and marketing. It’s only after subtracting other overhead that the company becomes unprofitable. Other overhead includes operations and support, research and development, and general administrative. If you read the descriptions of these categories it becomes apparent that they are going to need to lay people off if they cut spending there. Sales and marketing also includes a lot of headcount. All the above math includes both rides and eats. There are other numbers in the annual report that show that rides is making more money overall while other areas are losing more.
  - yashap 7y ago
    For those wondering where the rest of the $$$ went, the main other costs were about $5.8 billion to R&D, and $3.3 billion to “General and Administrative.” Although, R&D costs were very inflated in Q2, due to stock payouts and whatnot related to the IPO, in the other quarters R&D costs were well below Sales and Marketing. So normally “cost of revenue” and “sales and marketing” would be the top two categories, then R&D. Realistically, they need to cut from pretty much everywhere, especially with revenue tanking during COVID. Even without that one-time IPO related payout of about $3.6 billion last year, they still would’ve burnt ~$5 billion. Their losses this year, with massively decreased revenue due to COVID, could probably be $10+ billion (if they didn’t lay people off). That’d be for non-IPO costs staying static while revenue drops ~35%. And I believe their nest egg is only ~$10 billion, so that’s very roughly around 1 year of runway, much too short. They need to cut a LOT of costs.
  - three_seagrass 7y ago
    In 2019, Uber's selling and gen admin costs were $7.9B though, which was more than their gross profits of $6.9B.
lmilcin 7y ago
By your definition many successful companies would be performing poorly as they immediately invest all their profits. Marketing is an investment, because the benefits of marketing are in the future and are aimed at increasing business.
- sfifs 7y ago
  You're getting downvoted but GAAP treatment aside it's actually an interesting business question. It's often useful to think of marketing expenses on a continuum between "upper funnel" and "lower funnel". "Upper funnel" expenses tend to be more like investments (Brand TV advertising).Lower funnel tend to be more like "cost of sales" (promotion to buy more). Marketing spends on direct user acquisition tends to fall somewhere in the middle and that's where the whole controversy lies. One could argue as many start-ups have done that only if you acquire users aggressively will your future growth come and hence the spend is more "investment like". One could also argue that consumers are disloyal and will take their business to whatever "good enough" competitor exists that offers better value. A few decades of academic research in buyer behavior suggests that the latter is the norm in consumer facing industries (soaps, corn flakes, hotels, air tickets...). Purchase behavior in these industries tend to follow very well defined patterns (NBD-Dirichlet) but of course network effects, patents and regulatory capture can up-end this (Google, Facebook Comcast, eInk Corp...) In many ways, the marketing models of Uber and similar startups are bets that network effects break the patterns.
  - lmilcin 7y ago
    I think "fake it till you make it" is a proven, successful marketing strategy aimed at bringing actual business later on. When investors bring money they don't necessarily need to have profits immediately, it is ok to risk some of it for promise of future benefits (that is very definition of investing). I understand subsidizing rides might be questionable way of doing this, but do not mistake it for invalid business model. Employing children from poor asian countries to produce clothes you are selling is questionable but it sure as hell is profitable unless we collectively decide to make it unprofitable by outlawing or penalizing it in some other way. In the end, if we think rides should not be subsidized or maybe drivers should be paid enough to have a living there is nothing stopping us from electing reputable representatives that can be trusted to do just that.

ceohockey60 7y ago

Based on my observation of Uber and similar businesses, they are likely losing money slower during this downturn, and this layoff will help preserve more needed cash. Less rides means less revenue but also less cloud compute cost to serve them, payout to drivers, and certainly no driver subsidies at this point, which during normal times is quite costly. Many of these are variable costs tied to ride volume. The only major fix costs to operating Uber's ridesharing business is people, office commercial leases, and maintaining IT infrastructure (I believe Uber operates its own cloud, but not 100% sure). And now it's cutting the "people" part to preserve more cash for the long-haul.

1MoreThing 7y ago
According to their last earnings call, Uber's rides business was making enough profit paying for all of R&D costs. It's been a long time since the "losing money on every ride" narrative was true.
- arcticbull 7y ago
  Weren't the massive quantity of discounts required to entice people to use them factored into marketing? Further I believe they counted the entire price of a shared ride as "revenue" while they only counted 30% of regular rides, even though shared rides likely made them even less money? That would restore the narrative.
  - georgespencer 7y ago
    Their annual report[1] shows 2019 revenue of $14.1bn, with cost of revenue of $7.2bn and sales and marketing costs of $4.6bn. Both cost of revenue and sales and marketing (for simplicity's sake I'll call these "direct costs") grew proportionately to revenue growth year on year from 2018 to 2019, running at 77% of revenue in 2018 and 83% of revenue in 2019. The 5% swing there is almost purely marketing: cost of revenue was 49.8% of revenue in 2018 and 50.9% in 2019, whereas marketing grew from 27.9% to 32.6%. So they could be hiding subsidies (prefer this term to discounts) in marketing costs, although it's not such a significant figure that it loses them money. It's conceivable that they're still doing some hocus pocus with the treatment of pool revenue, but it would have to be a significant portion of their revenue for it to have an impact. I can't find the disclosures on this if they're in there (although they do disclose that they treat three people pooling as three rides, which seems fair enough). The business suffered a 2.8x increase in losses from operations -- $8.5bn up from $3bn -- but this appears to mainly be attributable to R&D costs growing from $1.5bn to $4.8bn YOY. [1] https://investor.uber.com/news-events/news/press-release-details/2020/Uber-Announces-Results-for-Fourth-Quarter-and-Full-Year-2019/ https://investor.uber.com/news-events/news/press-release-det...

deleted 7y ago

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paxys 7y ago

Likely faster, considering the largest cost (employee salaries) is staying fixed. Which is probably what triggered these layoffs.

deleted 7y ago

[deleted]