Profit And Loss Statement For Uber Driver

Profit And Loss Statement For Uber Driver – Uber claims to be a software company. A software company can avoid burdensome shipping regulations. But more importantly, it will get investor capital sooner – software monopolies have huge profit margins, trucking companies don’t.

When young, software companies tend to favor user growth over profit. The marginal cost of adding just one customer is close to zero; the main cost is writing and maintaining the software, which does not increase linearly as customers are added. As Mark Suster says, for-profit software startups can easily grow employees before revenue.

Profit And Loss Statement For Uber Driver

Software companies have incredible economies of scale because their marginal cost of serving additional customers is low. While Internet software companies have margins of 24%, transportation companies have net margins of 2-5%.

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Uber’s trip expenses were about 90-95% of revenue – it had a gross profit of $865 million on revenue of $9.786 million, or a gross profit margin of 8.8%. Unlike software, an additional $1 in sales comes at a cost of about eighty cents.

Gross profit margin also does not consider operating expenses such as “Operations and Maintenance” and “General and Administrative”. Those costs rose 42% quarter-on-quarter, while gross profit grew just 15%, a worrying scale. This could be due to an increase in, say, the quality of service, rather than simply more customers.

For the second quarter, 2016 versus 2017, Uber doubled its revenue, but its operating costs fell by just 3 percentage points, or 15%. For Q3, operating expenses decreased 5 percentage points, or 22%. Further cuts, above say 15%, may become more difficult as income growth slows.

A ubiquitous method of estimating manufacturing costs is learning curves: as the production volume of something doubles, its unit costs decrease by a constant fraction for that product category. Uber’s reduction in unit operating costs of 15% after doubling volume is perfectly normal for … precision manufacturing such as aerospace manufacturing.

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The other problem: Uber has no pit. If Uber charges enough to have profit margins above 10%, a start-up or foreign company will enter the market and cut into its profits. Drivers and riders can easily switch to another company that offers higher pay and lower prices, respectively. The Chinese giant Didi Chuxing is already roaming in Uber territory.

Despite a small fraction of market share, Lyft has had Uber-like response times for years in major markets (based on personal experience in Los Angeles). The promise of a profitable monopoly through “scale” was a cultural corporate mantra, not a sound strategy.

In 2016, Uber’s total revenue increased 26% from Q2 to Q3. 2017: 11% over the same period. Annually, these figures are 150% and 52%. From 2016 to 2017, revenue doubled in the second quarter, but “only” increased 78% in the third quarter.

In 2018, the rate of income growth will continue to slow, even if travel subsidies are maintained. They won’t do it. Uber is cutting them to be profitable, stifling growth.

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Uber has new mantras to separate investors from their money. Instead of “network effects” and “scale, baby, scale”, it’s now autonomous vehicles and flying cars.

Today’s batteries are not capable enough for a viable flying car. As for AVs, even if they are possible soon, that will be cold comfort for Uber. As of January 2018, 49 companies have received permission to test AVs in the state of California alone.

If even a small part of this area is a ride-hailing service, the competition for Uber will be very strong. Uber was already dead last (sixth) in AV reliability in 2016. Competing with dozens of competitors instead of just one does not help Uber’s bottom line.

Parenthetically, with AVs, it’s even plausible that automakers can charge drivers below cost and still make a profit. Tesla has promised to sell AVs to customers and allow them to work with Tesla’s own ride-hailing service. It can charge car owners a rate higher than the marginal cost of a trip but less than the total cost of ownership. With Tesla’s dedicated fan base, a major acquisition could go ahead despite being financially irrational.

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Uber can’t do that because it doesn’t sell cars. It has to compete with vertically integrated competitors like GM.

Hiring drivers may be the biggest barrier to entry for new ride-hailing companies — and that will disappear once AVs are enabled. Apps that provide full pricing quickly direct drivers to the cheapest ride available. Car manufacturers such as BMW and GM already use car sharing services for later use of AVs.

In the first few years, Uber struggled for a toe in the market and reduced the basic functionality of the app. On the other hand, future progress is in incremental profits through product development.

Uber spends about 10% of its revenue on insurance. Fewer accidents mean fewer payments and lower maintenance and administration costs.

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Until recently, Uber did not charge passengers for the car-to-driver phase of the trip. This means that passengers will pay the same price regardless of the time and the time drivers have to spend on fuel to reach the passenger – a “growth subsidy” for cyclists in congested areas with lower drivers, paid for by other drivers .

There is no doubt that the ride has improved the taxi experience. Smartphone use is fueling innovation in an otherwise reserved sector. The core product is valuable, one that people are happy to pay for. But some grim economic realities remain—notably the low economies of scale inherent in taxes. Uber has not found a way around these facts. At its best, it uses a combination of innovation and deregulation to streamline logistics, eliminate economic rent and reduce drivers to achieve lower average costs and better service.

Consumer prices have to rise by about 10-20% for businesses to make a profit. (In September 2017, Uber raised prices per mile by 5-7% on UberX in all major California markets and … hardly anyone noticed.) In terms of profit margins, the trucking industry is a reasonable benchmark, deserving of a 3 -6% profit margin.

Although a small number of games gain popularity, competition from other options keeps prices down. In particular, Bikeshare is a low-cost and fast-growing competitor and already does ~3 times the trip volume of Didi Chuxing, at ~60 million versus ~20 million trips per day. Car ownership is still abundant, of course, so driving is cost-competitive when parking is cheap for sober travel.

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Rival Didi Chuxing, fresh from raising $4 billion in capital and investing in the bike division, could reignite fierce price wars in Uber’s strongholds just as Uber’s subsidies were set up.

With the sector full of competition, capital and change, profits will soon drop to zero as Uber’s valuation continues to decline to reflect its financials.

Amazon is known for keeping earnings until recently in search of growth… and made Jeff Bezos the richest man in the world. Maybe Uber is just taking a page from Amazon.

After payment of the price of the goods, i.e. Drivers and insurance, Uber has less than 10% gross profit margin. In contrast, Amazon’s margin continued to grow at 36% for the most recent available period. Uber has very little room to turn a profit even before operating costs without raising the price.

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