A Story About Uber’s Profitability
"Will Uber Ever Make Money?" This is the question making headlines in the world’s most prestigious business media outlets and the response cannot be clearer. It is. According to the company’s most recent earnings results (third quarter of 2019), revenue stood at $3.8 billion, a 30 percent year-over-year uptick. However, earnings before interest, taxes, depreciation and amortization were a loss of $585 million. With days before it’s 2019 full year results, the company is dealing with bad news from its most profitable European market—London, where its license has not yet been renewed by local regulators due to safety concerns, and the dispute is ongoing.
The new decade started with pressure on its California business as well, as the Assembly Bill 5 labor law came into effect on Jan. 1. Analysts estimated that Uber and Lyft will spend a total of roughly $800 million per year in payroll taxes, workers’ compensation and higher wages for their drivers. The new legislation offers protection to workers classified as employees, including stipulations on the minimum wage. Minimum wage in California is $12 and $15 in some cities, including San Francisco. This also applies to Uber drivers, who are currently treated as independent contractors.
Ride-share providers asked to be exempted from the new law but were denied. This led to an ‘alliance’ between Uber, Lyft and DoorDash—each pledged $30 million for a 2020 ballot initiative to exempt them from the legislation that makes it difficult for them to continue as they have so far. To encourage voters, the companies included a provision in the proposal that the drivers will be making at least 20 percent more than the minimum wage. For those working more than 15 hours per week, there will also be some health-care benefits. Still, drivers claim the provisions do not cover the time they spend between rides. To help win them over, Uber has already started offering Californian drivers some benefits that are actually older requests they have been making to the company—for example, knowing where the rider is going before agreeing to a ride.
A pioneer in transportation and a winner of the new wave of tech startups that managed to rise (way) up, Uber is under close scrutiny by the media. Its (once) unique business model comes with unique challenges. The company has managed to quickly become a strong brand, a household name, but is now trying to emerge just as triumphantly in other segments as well. Uber Eats grew revenues by 64 percent in the third quarter of 2019 compared to a year before, while Uber Freight grew by 78 percent. Its scooters and electric bike rentals segment also saw significant gains but still represent a small part of overall revenues.
The promising premises and pressures for profit are determining Uber to continue investing in its own growth, similar to an early stage start-up. This makes predicting its evolution a challenging matter. As CEO Dara Khosrowshahi himself once said: “We’re not going to have predictable profitability,” and added that if shareholders want a predictably profitable company, they should “go buy a bank.”
It is the company’s household name and its ability to transform and adapt that make it one of the most valuable in today’s economy. Some compare it with giants like Facebook and Amazon, and feel that moving forward in the business is the way to go. Uber knows just that and has started focusing on partnerships as a way to go beyond its regulatory limitations that prove so challenging at the moment in several of its markets across the globe. It’s been almost a year since CTO Thuan Pham discussed the possibility of allowing third-party developers to build applications on top of Uber, but so far not much has happened in this direction.
As for the future, Uber and Hyundai Motor are working to create electric air taxis, with a prototype already presented early this year in Las Vegas. Another goal is the expansion and development of Uber Works—a platform for booking workers for temporary jobs—beyond Miami and Chicago.
The thing with Uber is understanding it has a less predictable business development path and high costs for growing its various ventures. This is also where its strength lies—the power to transform and adapt in a world that is changing fast and moving towards an uncertain future.