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.
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.