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On Uber's platform, the marginal cost for one ride, i.e. the cost for Uber to coordinate a ride, is tiny. Uber's cost of a ride are its server and maintenance c
by tristanj 6y ago
On Uber's platform, the marginal cost for one ride, i.e. the cost for Uber to coordinate a ride, is tiny. Uber's cost of a ride are its server and maintenance costs, its incremental rider/driver customer support costs, and credit card transaction costs. These add up to less than 5% of the rider's total fare cost.
In developed markets, Uber takes a 25% cut of the total fare cost of every ride. The 25% cut far exceeds the 5% marginal cost of the ride. On each ride that occurs on their platform, Uber makes a 20% profit.
The more rides Uber handles, the more money they make. Last year, Uber managed 3 million trips per day on its platform. If Uber did 2-3x the number of rides it did last year, it would be a very profitable company. It has not yet reached this point (investors are still waiting).
However, Uber has very high fixed costs, mostly from its Silicon Valley salaries. Further, trips in developing markets are heavily subsidized and occur at a loss. Uber management has focused on cutting costs to extend runway & make profitability happen sooner.
- Ansil849 6y agoThank you, but so this doesn't answer my original question: how does Uber then continue to exist, given all the news I see seems to suggest that those fixed costs you're describing are leading to Uber not actually being profitable.
- tristanj 6y agoThe 'rides' division of Uber is profitable, or at least, was profitable before Covid. The rides division brought in a net positive of $742m in 2019. Uber as a whole is not profitable since they lose money on their Eats, Freight, and self driving divisions. The Rides division has only recently been profitable; it lost money for over a decade and started being profitable in 2019. Rides is profitable because Uber has significantly reduced subsidizing rides. They also have cut expansion in many developing markets. Finally they raised prices in developed markets. See their 2019 Q4 financials - they now claim to make, on average, a 24% margin on every Uber ride. 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... Uber as a whole can become profitable at any time by cutting their money-losing divisions.