3 ms·

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 m

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 6y ago
But that overhead was largely marketing and they bundled discount prices into marketing expenses.
- djannzjkzxn 6y 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 6y 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 6y 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 6y 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 6y 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 6y 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.

MiroF 6y ago

But that overhead was largely marketing and they bundled discount prices into marketing expenses.

djannzjkzxn 6y 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 6y 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 6y 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 6y 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 6y 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 6y 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.