“How? it’s lost multiple millions every quarter according to internet articles.”
First of all, Uber is owned by private equity investors. It’s not publicly traded. It’s valuation is based on internal, self-valuation. And the profitability of the company is not based on publicly disclosed p&l statements. That being said, they are not in the profit mode yet.
They are not a loss leader either though. They make a profit off of each transaction typically, because their overhead is very low, and they carry very little capital risk. Loss is mainly due to reinvesting the per-transaction profits back into the business for rapid growth.
They have spread to the entire planet in a few short years. Startups almost never make money in this short of time frame, especially with this kind of rapid growth and market share gain.
A good comparison is Federal Express. On paper, Uber’s valuation is bigger than FedEx. It took decades for FedEx to get to it’s level, size, and market share.
Millions of customers use Uber regularly. The majority of them prefer Uber over traditional taxi service. Uber is faster, more efficient, allows for cashless transactions, and is available in most major cities worldwide.
As Fred Smith, the founder of FedEx said, profit is not the purpose of a business. Profit is the life blood of business. It is necessary for a business to stay alive. But the purpose of a business is to provide a valuable service (or product). That philosophy made FedEx the multi-billion dollar leader of time-sensitive delivery.
Profit is something shareholders will demand long-term, but Uber has not had an IPO yet. It’s investors understand it is in the rapid growth phase of an international startup business. This requires a large capital infusion (usually multiple) in order to repeat scalable business processes.
The venture capitalists who have poured billions into Uber know a lot more than either of us. Uber does not have as much of a barrier of entry as companies like FedEx. But remember, FedEx started before UPS got into the overnight delivery market. And UPS had more cash on hand (zero debt) than FedEx had in total valuation back when UPS started to compete. Yet FedEx got the advantage to remain the industry leader for many years because of being first to market.
Uber has a similar lead. Ride sharing is a generally profitable business model by default. That’s why taxi service exists. Uber has very low overhead. They are preparing for a major shift that will occur when cars become self-driving. Of all ride sharing companies out there, they are the most prepared and have the most potential to become profitable.
Uber is NOT a transportation business though. It is, like FedEx, a logistics company. However, unlike FedEx, it does not have the business overhead of having to own aircraft, trucks, hangers, hubs, storefronts, and other facilities. It is lean.
Uber is very well positioned to become a very profitable and powerful business. There are many factors it can not control: regulation, public sentiment, the impact of closed markets like China, who wins the tech war when it comes to self-driving cars, etc. Is profitability guaranteed? Of course not. But that is the nature of free market capitalism.
Uber has received its fair share of negative publicity. Some may be due to competitors (especially traditional taxi services) trying to cast it in a negative light. Some may be due to its leaders working with Trump. Some may be due to unethical or even illegal acts. Some may due to bad business practices in which it has failed to listen to the concerns of consumers and / or employees and contractors. It has almost certainly treated a large number of drivers unfairly by recruiting drivers with claims of huge money-making potential that either did not exist or the leadership knew would not exist for very long. They have lowered fares in some markets where it is difficult, if not impossible, for drivers to earn a decent wage.
Startup competitors like Lyft have come into the market to take advantage of these weaknesses. I read that one startup in New York was offering its drivers some stock ownership. It is hard to predict how such things may impact the future profitability of Uber, but these are not anything out of the ordinary for a business of its size, especially in the disruptive market space of smart phone apps and a sharing economy.
What keeps a new company like Goober from starting up tomorrow and offering the exact same services as Uber for a much lower price?
I spoke to a FedEx Ground driver about his Sprinter. I was surprised to learn that he was an independent contractor deliverer and the van was actually his.
Well I guess we’ll see. Obviously you’ve put a lot of thought into it. But if the true cost of taking you downtown is $12 and you are only charged $4 something, at some point, will have to give.