Uber
is active and present in roughly 60 countries and over 300 cities across the
globe. Millions of people have the app downloaded on their smartphones and use
the service to get to and from various places. On May 10, 2019, Uber’s initial
public offering (IPO) even began trading.
In
light of these details, arriving at the conclusion that Uber is a profitable
enterprise wouldn’t be unreasonable. However, as shocking as this reality may
be, Uber is far from profitable. As a matter of fact, they’re not even breaking
even. Uber has consistently taken one financial loss after the other and there
are several reasons for this.
More
Overhead than Profit
According to a Wall Street Journal
report of Uber’s financials, the rideshare company maintains a gross
profit of roughly $1.5 billion dollars. Of course, this sounds great, until the
costs of running the business come into account.
Put simply, Uber spends a collective total of
about $2.2 billion dollars just to continue running their business. That $2.2
billion dollars covers sales, marketing, research, development, operations, and
support along with general, administrative work, and other operational fees.
The revenue which Uber rakes in from their
plethora of rides just isn’t enough to turn a profit, in light of their
overhead expenses.
Marketplace Competition
No one can deny Uber’s dominance or the impact
they’ve made in the lives of consumers; however, this doesn’t mean that the
rideshare company is without competition. It turns out that Uber’s competition
in places like Russia, India, and the United Kingdom is another contributing
factor to their lack of profitability.
Competition which slams Uber isn’t mutually
exclusive to overseas areas either. Here in the states, Uber’s losses are
partially due to the existence of delivery services such as DoorDash, GrubHub,
and Postmates.
Lack of In-App Switch Costs
When using various rideshare (or other
similar) services, it’s not uncommon for consumers to switch between different
apps. In fact, this is quite understandable, seeing as most customers seek to
get the greatest bang for their buck. However, what seems like a harmless
action on the end of the consumer actually costs Uber and is yet another
contributing factor in their lack of profitability as a company.
While other enterprises, such as Alibaba or
Amazon, create incentives for consumers not to click off or switch out of their
apps/services, Uber doesn’t. As a result, Uber absorbs the loss when customers
switch out of their app for a cheaper alternative. To make matters even worse
for Uber, their competitors are able to use switch costs for their own
benefit…and at the expense of Uber, of course.
Poor Stock Performance
Since Uber’s IPO release, the stock hasn’t
done so well. As a matter of fact, a considerable portion of the stock’s poor
performance can be traced back to extracurricular ventures which aren’t really
serving Uber well.
In order to improve the performance of their
stock, Uber would do well to let go of their e-scooters, e-bikes, and
self-driving cars. The numbers more than indicate that each of the
aforementioned ventures are only helping to tank Uber’s stock, hence their lack
of profitability.
