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Comment by Bootwizard | Hacker News Reader

Does anyone have any idea why Uber isn't profitable? I never really understood that. It's such a ubiquitous service in a large portion of the world.

It seems to me that they have a lot of physical growth, so what is happening to their finances?

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You literally cannot profitably transport people at the prices they're offering. Uber is just one big bet that the price point of transportation will fall significantly with the advent of self driving and they'll be there to make the money off that margin.

I think this is utter BS. the reason Lyft and Uber are not profitable is that they keep fighting a war for customers with each other! The last time I compared a taxi to a Lyft it was $17 versus $34. Lyft could easily charge 50% more except Uber is trying to kill them by wasting investor money!

I think it's completely right.

I virtually completely stopped using Lyft//Uber since they increased prices in SF. I know a lot of other people that stop using them also. Most rides are above 15$ which is above what I'm ready to pay to get somewhere in the city. I walk, use my bike or drive whenever possible. The new price point simply doesn't make sense anymore.

And in most places, customers are way more price sensitive than I am.

>You literally cannot profitably transport people at the prices they're offering

That's not my understanding of the figures, which say that they're charging plenty enough to cover the costs associated with the ride, but are blowing lots of money on aggressive marketing. The transportation costs (i.e. driver pay and customer service) are not what's killing them.

"incentives", i.e. discounts/coupons for passengers or pay bumps for drivers, are a huge part of those marketing costs. So while they're rolled under the marketing budget they fundamentally are a distortion of the price they need to pay drivers or amount they need to charge passengers to become profitable.

A lot of these "marketing" costs are clever ways of hiding costs of providing rides as separate line items.

Yes, but if they were all driver incentives, there would be no revenue according to the model they're using. Customer incentives, on the other hand, are hidden in operating costs and not placed in the cost of revenue where they probably should be.

I was in an empty pool ride for 45 minutes taking me from inner Boston to the suburbs and I paid $5. Unless I'm wrong, that's below minimum wage so someone somewhere is subsidizing the difference

Why would they care about self-driving if most of their drivers are making little more than the cost of operating their vehicle?

Economies of scale kick in when you own the fleet. I'm also not sure about the statement "most of their drivers are making little more than the cost of operating their vehicle".

If owning the fleet was valuable, there's not much (probably just labor law and some issues with the mythos) stopping Uber et al from owning the vehicles the drivers drive.

I think self-driving is the cold fusion of the 21st century, but the reason unlicensed taxi companies are pursuing it is because if, by some miracle, it comes to fruition, it might make their business viable, but it would be hard to compete with an automaker running autonomous taxis when you have to buy your autonomous taxis from the automaker you're competing with. If they can build it on top of existing cars, it makes it more possible to compete; and if they end up with an enabling patent, it means they'll probably survive in some form.

Drivers have an acquisition cost in marketing too. And will quit eventually if they keep losing money.

Semantics. Cars don’t cost that much to operate. Uber doesn’t cost that much. The portion going to the human take home pay minus car value depreciation and other expenses is small, but a substantial chunk of it.

Cars cost a huge amount of money upfront and require a tremendous amount of maintenance to operate, and that's before we get into insurance and accidents.

Right now, all of these are fully on the drivers. This will turn around if Uber rolls self-driving cars worldwide.

Having looked into the finances of car share companies I can vouch that the fleet costs are just huge blots of red ink on their finances

Uber wouldn't work if they owned the fleet - it's a huge advantage to just be the app + ops + acquisition costs

Right, eventually the drivers will figure out that they are the losers in this scheme. People really don't understand just how much it costs to own a car, especially one you drive 30k miles a year.

Taxi cab companies are incredibly corrupt as they are run like your local cable TV service! With all the customer satisfaction and low prices and quality service that that entails! I believe that Lyft and Uber can easily beat the corruption of the taxi cab market and still provide rides at a good price and profitably.

Because this is untrue? Even the most pessimistic estimates have drivers making a substantial amount more than 0; the complaints are that they don't make enough to justify their hours of labor. Removing this labor cost would be non trivial, esp once the cost of a self-driving fleet stabilizes.

They do make profit on each ride, but not when you account for administrative overhead (which is huge because of their ridiculous headcount).

Which would mean they do _not_ make a profit on each ride.

randyrand is talking about gross margin; you're thinking about earnings. You can have a positive gross margin and negative earnings. There's no point arguing about whether this does or does not constitute making a profit in some absolute sense - just understand that both are true.

Charitable interpretation is that the parent is talking about Uber's gross margin, which is presumably fairly high.

Let's split the difference:

They make profit from some rides. And the amount of profit matters, too.

People like comparing Uber to, say, Amazon. The major difference is that Amazon benefitted from economies of scale - they spent a lot of time in the red building infrastructure and logistics, but now they reap the benefits by having very good infrastructure and logistics, which only get more efficient the more things they sell.

Uber's main expense is the driver. The vehicles pretty much always stay the same size so they don't actually benefit from economies of scale. And drivers (and customers) are fickle; most drivers and customers have more than one app on their phone. If Uber hikes prices or slashes driver compensation people will just leave. Uber has a growth story if you believe that AVs are just around the corner, but that's a pretty big if.

Uber mostly made it to the IPO with the help of Softbank, one of if not its largest shareholders. Softbank had a $100B Vision Fund. With that kind of money you could be unprofitable for a while and still be a going concern.

The view that "Uber's main expense is the driver" is essentially backwards. The current economics are more akin to drivers paying Uber to find them business. Drivers pay for all of the physical expenses of a ride (like gas, maintenance, depreciation and financing charges) and provide all of the labor. Since it would almost certainly cost Uber much more to buy the vehicles, pay for the gas and hire the drivers as employees it is fairer to say "Uber's main income source is drivers".

AV only offers a growth story if you believe the drivers' earnings are high enough to more than cover the additional costs to Uber of buying, fueling, and maintaining the AV fleet. With AV prices likely to be significantly higher than traditional vehicles for the foreseeable future and since most studies show drivers' net income near minimum wages this seems pretty unlikely to me.

Amazon was cash flow positive after few years of existence. Uber, as far as I under stand, is still isn't. https://www.reuters.com/article/us-uber-ipo-breakingviews/br...

Well, Amazon also is focused on disinter-mediating everyone. Those people's margins are Amazon's opportunity. Even now they are increasing their fleet into someone else's margins, go check out the Cincinnati airport.

There's nothing that sets them apart from competitors so it's a race to the bottom. If you're a rider you're always going to go to who has the best price and if you're a driver you're going to go to who pays you the most. If they ever hope to be profitable they need to cut labor costs or have a distinguishing factor.

The best way to understand this is to look at their financial statements:

https://investor.uber.com/news-events/news/press-release-det...

Generally, you would go to the 10-K to get a quick snap shot.

I direct you to look at the "CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS"

You can see that they made about 1.4B (in Q1) after paying the drivers but then they spent 2.2B on:

Operations and support, Sales and marketing, Research and development, General and administrative

Note, of these categories, Sales and Marketing was the largest and eliminating it completely (not recommending this) would get them to break even.

Agreed, but like others have pointed out “marketing” includes marketing to drivers with incentives to drive. They’re not running advertisements they’re subsidizing rides on the driver and passenger side and calling it part of their marketing spend.

The problem with Uber is that their technology isn’t that innovative and their platform isn’t that sticky.

The technology only seems "not that innovative" because they've been around for a decade. The whole concept wouldn't be possible without widespread smartphone adoption which occurred in that time. The real problem with the business is the economics don't work. Riders use Uber because it's cheap and driver use it because they get paid enough to make it worth their while (or at least they believe that to be the case). These two things are only the case because they're blowing billions of dollars on subsidies.

They’re trading cash to build their moat (keeping out competitors, investing in self-driving). From what I can tell, at least.

That's the theory, but I have no idea what this "moat" is supposed to be. Apps to hail a cab are interchangeable commodities as far as I can tell.

There's a network effect component for shared/pooled rides.

Upstarts will lose a lot if they offer shared prices without matched riders.

The network exists for non-pooled rides as well. Riders don't have to wait as long if there are more drivers, and drivers don't have to drive as far to pick up a ride if there are more passengers. The increased efficiencies allow prices to be lower as well.

Do that many people share rides with strangers in Uber? I never have.

I can tell you that as a driver, about ~25% of my ride requests in Toronto are Pool requests.

We also have Express Pool where you get picked up / dropped off at some walkable distance from your actual origin/destination to make it even cheaper for the consumer and more efficient for drivers.

At one point Uber was even competing with the bus / streetcar with a special ride type where you would have to be picked up or dropped off at specific points along one street but they discontinued this.

I would definitely consider these sorts of shared rides as a moat.

I thought that promo was only during a weekend subway shutdown.

Just looked at an Uber trip in Toronto, and the breakdown is:

Express Pool: $8.44

Pool: $11.25

UberX: $17.38

This is great info, thank you and i agree with your conclusion.

RU kidding Uber pool and Lyft line rides are often cheaper than public transportation!

It's often about a third cheaper and some people get it as part of commuter bennifits in leiu of parking.

> Apps to hail a cab are interchangeable commodities as far as I can tell.

That's what I keep getting stuck on. It's getting easier to compete with Uber and I don't think that's going to change. They have a well known brand but even that feels like it's on verge of becoming genericized.

Right now it wouldn't surprise me if a lot of Uber inertia was specifically because their competitors are smaller and more localized.

I live in NYC, and there are half-dozen major rideshare apps here in some form - but I often travel to places where, if there is any major service operating there at all, its Uber... maybe Lyft, but certainly not Via or Juno or Gett or any other smaller names.

I don't want to load my phone up with a bunch of different apps and give my data to a bunch of different companies, so guess which app I use even at home where I have plenty of options? Uber. The barrier to entry of getting a new local competitor up and running is small, but the convenience of being able to stick with one provider no matter where you are is big.

I never ride Uber at home but there are some places where it's so entrenched (e.g. Mexico) that there are no real competitor apps. On the other hand, I've gotten better deals there from taxis and they've been more reliable. You can often look up a ride on Uber and negotiate with a taxi driver right then and there. If you don't speak Spanish, though...

> It seems to me that they have a lot of physical growth, so what is happening to their finances?

This is the story of just about every Valley startup. Seemingly greater losses the larger the userbase grows. When asking how this is possible, everyone will answer "you just don't understand, this is a good thing."

A lot of people use it because it's so obvious that they're operating at a loss. That's why the ride is so cheap. If they brought prices up to what they "should" be, volume would go down or the competition would snatch it up.

If Uber wants to take a loss on my ride, I'll be there every time.

> If they brought prices up to what they "should" be, volume would go down or the competition would snatch it up

Last I checked, Uber made money on each ride in New York and San Francisco. The model can make money. I just don't know if it can make money everywhere.

... and if they brought prices up to what they "should" be, I'll just use Lyft. Or if that isn't an option, get to my destination on my own.

Lyft is in the same boat--or arguably worse. I fully expect these services will see significant price increases. One of the consequences will be that both the driver and passenger sides of the network will thin out, which probably means they won't work as well in less-dense areas.

They have to offer significant promotions and sell their rides below the rates of other taxi companies, in order to obtain market share.

They've been doing this to grab market share for the last decade. Undercutting competition is not a profitable business.

Its partially because they are in a war of attrition.

Drug dealers have been known to sell drugs to someone new cheap (perhaps at a loss) to get them hooked, and then once they are hooked jack the price up. Uber is trying to do that with transport.

Do you have a cite for that? I'm skeptical that there are a lot of "I don't know you, have some free drugs" organized loss-leader operations happening.

I suspect this is actually mostly propaganda and exaggeration, and that the actual practice—to the extent it exists—is more like offering a small sample to a well-known existing customer.

> Do you have a cite for that?

I have first hand experience that this does indeed happen...

Drug dealers have a desire to expand their customer base just as much as any other small business but have very limited ways in which to do so.

You're suspicions are correct IME. Direct marketing isn't an option for illegal substances, you have to know someone that knows someone, otherwise the police would just wander around all day waiting for offers. Also at the leaf nodes of distribution there is unlikely to be enough cash reserves to be offering free product or even small samples, the leaf nodes are generally users themselves.

Mostly it seems to be propaganda that drugs can be addictive after a single hit, which is complete BS.

What happens when the consumer realizes this drug dealer has jacked up prices because they're giving product away? They go to the corner and find a cheaper alternative.

Uber wants to be the only dealer in town.

The barriers to entry aren't high enough.

Most Uber rides are priced below cost to try and drive growth. Or at least, that was the original story they told. Lately it seems more like “Uber rides are priced below cost, because if we price them any higher users will flee to a different ride-hailing service, because we have no lock-in or switching costs”. Uber’s entire business model is selling dollar bills for 90 cents and it’s all going to come apart shortly.

I wonder if there's a predatory pricing case there

I don't think so because they have a positive gross margin.

It's a grift that will never be profitable.

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