Honest question from someone who doesn't understand high finance:
Article says $2.95b revenue. Where did all that money go? Wiki says they have 12k employees, is every single employee getting paid $300k+?
And if Uber has never been profitable, or at least not for a while, where does the money come from? Is there really $100b+ of investor cash floating around out there, getting spent on stuff like Uber?
You're just missing some terminology. This stuff is surprisingly complex -- which gives technical people used to worrying about mind-numbing levels of complexity an edge ;)
"Revenue" is confusing for business like this. More precise reporting usually reports either "GMV" (gross marketplace value, all the payments Uber took in) or "net revenue", which would deduct the amounts paid to drivers. If an article said "revenue" without further qualification and it was a marketplace business, I'd probably assume they were talking about GMV.
"Profit" is to some extent a fiction of the accounting department -- the relevant question is actually cashflow. Money in, money out. When you need to make a payment for loan service/payroll/etc and don't have the cash, you're headed for bankruptcy; that's pretty easy to understand. By way of comparison, whether or not a firm is "profitable" requires making a bunch of complicated judgments about whether you've actually "earned" the cash you've collected (e.g. gift cards, multi-year software contracts) and on the expense side, how to spread the cost of large, long-term, fixed assets (like code development, PCs, etc) against what they productively delivered (revenue-wise) over long timescales, potentially decades. That's called depreciation and amortization and it's a big topic in accounting school.
One thing many developers forget is that customer acquisition, especially in marketplace businesses like Uber, DEVOURS cash. Uber spends like crazy on everything from conventional advertising (digital, TV, radio), referral/sign-up credits, rider incentives, cross-promotions with other brands (stay at X hotel and get uber for 10% off), etc.
Uber is uniquely complex because it's sort of an aggregated conglomerate of a bunch of markets with differing stages of maturity and profitability. Think of each of these as different businesses, where the older, more developed (e.g. Chicago, New York) ones are putting cash into the business, subsidizing the spend (investment) on developing a good competitive position in later markets.
And yes, there is absolutely truckloads of money available if you can show you can reliably acquire customers on a business with good economics.
It's fiction in that it can be whatever they want it to be.
Like Amazon was known for years to intentionally not make a profit. They arranged their business so that all the money they made got plowed back into the business in such a way that they could claim a slight loss.
"It's fiction in that it can be whatever they want it to be."
No, absolutely not. There are well accepted accounting principles.
If a company wants to re-invest, then they can do that - but 'profit' is a material, objective thing, of course it changes profit, but it also would change 'cash flow'.
Financial accounting is a real thing, not any kind of fiction.
It gets to be fiction when there are things that are difficult to account for, or intangible things like goodwill.
But if they book a sale on Dec 1 - then that's revenue, even if the money doesn't come in until 3 months later.
Goodwill is simply the difference between book value and price paid for an acquired company. For instance when Google bought YouTube for a billion it was almost all recorded as a Goodwill asset. Each year, Google must decide if YouTube continues to be worth at least a billion dollars, otherwise they may need to write down the goodwill, much like any other impaired asset. Buying companies are like buying other assets except they don't depreciate on the books and are called goodwill. Writedowns of goodwill are the same as any other asset impairment.
I really wish goodwill was called "acquisition premium" and everyone would get it.
" Writedowns of goodwill are the same as any other asset impairment."
Technically yes, but really no.
Most other assets have an objective value.
When companies buy others, they are buying brand, talent, future revenues, often at crazy massive premiums. That's where the inherent intangibility comes in.
There's just no way for investors to really nail down why a given acquisition might be had for this or that much.
Companies are bought for often nebulous reasons, so these writedowns often skew the earnings in weird ways.
So it's the inherent intangibility in that price ... that drives the ambiguity of a lot of goodwill.
But I get what you are saying, technically it's not rocket science.
While you're technically correct that there are well-accepted principles, they don't always have much bearing on whether a company will be solvent, or easy to finance.
Example 1: Amazon's core retail business. Not very "profitable". Yet, it provides a massive amount of float through their ability to get inventory quickly from suppliers on long payment terms (30-60 days), that's sold to customers in something like 7-14 days with immediate collection. That means Amazon has something like 2-6 weeks cash, at hundreds of billions/revenue per year (8-40 billion in interest-free cash), as effectively an interest-free loan. That might not be profitable but it's very easy to see how that allows cheap financing of capital-intensive investment. Amazon is explicitly run with emphasis on cashflow dynamics (less on profit). It's worked exceedingly well for them.
Example 2: A hotel might run very profitably on a unit basis but require so much upfront capital to finance that it's practically impossible to build.
My point isn't that accounting isn't "real". Money is also in some sense a "shared fiction" [1] and yet it's quite real. It's just that looking merely at accounting profit/loss doesn't really tell you much about the operational dynamics of a company. It took me a really long time to understand this.
[1] From "Sapiens", a great book, explaining the role of fiction in real-world decision-making and beliefs.
Yes, that's the difference between profit and cash flow, basically working capital.
I think most people get this, this isn't really one of those magic things.
In both cases you've described 'profit' is still 'profit' in the generally accepted sense, and we have cash flow statements to help us understand that.
> "Revenue" is confusing for business like this. More precise reporting usually reports either "GMV" (gross marketplace value, all the payments Uber took in)
Your description is confusing itself.
GMV is total retail value of transactions through a C2C type of business. eg ebay GMV would be the gross dollar value of all transactions. ebay revenue would represent ebay's total commissions, listing fees, and other income from being an agent in the sale.
So, while GMV is truly, quoting you, "all the payments Uber took in", because for Uber (unlike ebay) you don't pay the driver directly but rather all transactions are brokered by Uber, it is more clear to say that GMV is the total value of all rides. While stating that it's money taken in by Uber is true, it isn't as clear a description when you're trying to explain GMV.
> If an article said "revenue" without further qualification and it was a marketplace business, I'd probably assume they were talking about GMV.
I'd assume revenue, because GMV is not revenue. If only 1 number is reported, revenue, or net revenue if you will, is what we care about so that's what I'd assume is being reported. GMV without take rate is not that interesting.
I pretend to understand finance but constantly get surprised.
In financial statements, revenue is stated with (can be subtracted by) cost of revenue. Say you're selling baked beans, the cost of revenue is your beans and the tin and associated packaging. So, the cost of revenue is the drivers pay (contractors, not employees, I guess) and probably a little more marketing stuff baked in. Uber's not public so we're not privy to that.
Net revenue is probably a lot smaller, and I'm frankly stunned they have 12k employees and don't believe it. That's especially because a large part of their business (call centre, customer support) is further contracted out and won't count as employee headcount. Wiki cites a BBC article that doesn't make it clear if these 'Uber employees' are actually Uber staff. I do know that Uber 'staff' working in China doing customer support work (probably far more is outsourced in places other than China, I'm just familiar with China) for a variety of outsourcing partners, for example Concentrix, and get a wage of average about USD 600 per month.
Another large cost not included in other replies is growth in new markets. Not only new staff etc, but when they enter a city they subsidize rides a ton. Just think when one person signs up and gets $5 off first ride, they still have to pay the driver the regular rate. Plus, people use sign up codes, which gives both people $5 off their next ride. Again, they still need to pay both drivers their regular rate.
You're getting a lot of incorrect information in your responses. Uber's "revenue" is already net of driver payments (except in the case of Uber Pool).
Their big costs are payroll, marketing, promotions (for both the driver and the passenger), and probably compute. In a lot of cases, including "mature markets" in the US, they end up being unprofitable per ride due to the number of promotions they run.
This is interesting. I wonder how much money they are spending to keep ahead of competitors and I wonder if it will, in fact, pay off in the long run. They can't sustain a loss for long before people lose faith.
At least the early investors have probably made pretty substantial exits by now, made a nice chunk of money in record time. But at what cost? I don't think anyone sane could argue that their growth has been organic?
I'm baffled that this company as of October is targeting a $120B IPO valuation [1]. I'm assuming there are institutional buyers out there at this price as the article says banks advised them on this number. It would be one thing if the prospects for Uber converting revenue to its bottom line were great, but margins are shrinking. The CEO admits "we're in a big battle" with Lyft and more competitors are coming. Waymo will be all over the news next month [2]. IPOing in this environment - at least at a valuation 1.6x its last round [3] - seems difficult.
An IPO, no matter the climate, is the only way anyone gets their money even half back. If they wait, they will simply burn even more money and likely face an even worse climate as their business model is exposed more and more as unviable. Not that I would go near Uber with a 10 foot pole, but if I had money in this and didn't care about anything else, IPO ASAP would be my call.
How does Uber burn so much money? Isn't it a fundamentally profitable enterprise? Aren't they just skimming off contractors' wear-and-tear?
Won't they eventually hit a point where they promote their product less aggressively and generate significant revenue off the massive ride-sharing network that they've established?
They burn money to expand on markets where they still have competition from conventional cab companies or local competitors who come to market earlier. And they also tend to buy or sell into partnership in case they lost battle for said market like in middle-east Asia or Russia.
As for large network effect this is my layman talking, but it's only important on markets with highly mobile population like US or EU. Problem of Uber is that high percentage of population in many countries rarely travel outside of their city, region or country. While you travel a lot Uber is great: you arrive and it's working almost everywhere, but if you stay within borders of your home city 95% of time you can as well use some NotUber app instead if you like it more of it cheaper.
Just curious. I don't have TV so I don't have commercials, but are they like, advertising on TV or something, or is it more like, they fly into whatever city isn't using them, order up a bunch of cab rides, and tell the driver to work for them?
I know this comment risks coming off as snarky, but I mean it genuinely: Do you honestly believe the only advertising channels that exist are TV and in person? Is it possible someone on a tech-oriented site is this unaware of the advertising arena?
Lol, I honestly have never seen an ad for Uber in any website I have ever visited. They are, however talked about and recommended by everyone. So I am seriously curious where they are actually advertising.
When they initially arrived to Russia they paid for quite a lot of offline ads space all around the city and I suppose their ads was there for at least a year. I don't watch TV for last 12 years so have no clue if there was any ads there.
And since back then we already had multiple taxi services (mostly without mobile apps though) with quite low price they likely spend a lot on underbidding them.
As adjkant pointed out - it's 'better now than later' in many scenarios.
Also - Uber might be doing some big write-offs and dumping the ugliness of their spreadsheets now rather than later.
Basically they get rid of as much toxicity as early as possible, so the road to the IPO is more roses.
New CEO's often do that, dump the crap right away the first quarter they are there, so it can be written off as 'restructuring' by analysts. Uber does in fact have a new-ish CEO, maybe it's a little late for this, but not too late maybe.
There are public investors that want a piece of Uber at basically any price. When the upside is ownership of a worldwide ride hailing network, there will be no shortage of interest.
It's quite simple really. You haven't seen the numbers the investors have seen. I used to work in the private capital markets and it was awesome to be privvy to information that gave you more insight than can be gleaned from the outside.
Like the numbers investors saw for Snap before it’s IPO and it’s not doing so well right now. This 120B valuation doesn’t make sense regardless of the numbers. Especially considering they just did a bond sale with an 8% coupon. What company worth 120B sales bonds with an 8% coupon? Absurd tech bubble with ridiculously valued “unicorns”
8% on an 8 year coupon for $1.5B sounds like a heck of a deal for a growth company relative to raising another round. That's just around $2.8B paid back 8 years from now. If the company modestly triples from their current value over 8 years, that's a $1.7B savings.
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[ 3.1 ms ] story [ 81.8 ms ] threadArticle says $2.95b revenue. Where did all that money go? Wiki says they have 12k employees, is every single employee getting paid $300k+?
And if Uber has never been profitable, or at least not for a while, where does the money come from? Is there really $100b+ of investor cash floating around out there, getting spent on stuff like Uber?
In the majority of areas, Uber drivers aren't counted as employees, they are contractors. There are 2+ million Uber drivers.
For the second part, yes, and a LOT more than $100B. Heck, a single fund (SoftBank Vision Fund) is worth that much.
"Revenue" is confusing for business like this. More precise reporting usually reports either "GMV" (gross marketplace value, all the payments Uber took in) or "net revenue", which would deduct the amounts paid to drivers. If an article said "revenue" without further qualification and it was a marketplace business, I'd probably assume they were talking about GMV.
"Profit" is to some extent a fiction of the accounting department -- the relevant question is actually cashflow. Money in, money out. When you need to make a payment for loan service/payroll/etc and don't have the cash, you're headed for bankruptcy; that's pretty easy to understand. By way of comparison, whether or not a firm is "profitable" requires making a bunch of complicated judgments about whether you've actually "earned" the cash you've collected (e.g. gift cards, multi-year software contracts) and on the expense side, how to spread the cost of large, long-term, fixed assets (like code development, PCs, etc) against what they productively delivered (revenue-wise) over long timescales, potentially decades. That's called depreciation and amortization and it's a big topic in accounting school.
One thing many developers forget is that customer acquisition, especially in marketplace businesses like Uber, DEVOURS cash. Uber spends like crazy on everything from conventional advertising (digital, TV, radio), referral/sign-up credits, rider incentives, cross-promotions with other brands (stay at X hotel and get uber for 10% off), etc.
Uber is uniquely complex because it's sort of an aggregated conglomerate of a bunch of markets with differing stages of maturity and profitability. Think of each of these as different businesses, where the older, more developed (e.g. Chicago, New York) ones are putting cash into the business, subsidizing the spend (investment) on developing a good competitive position in later markets.
And yes, there is absolutely truckloads of money available if you can show you can reliably acquire customers on a business with good economics.
Cash flows ultimately reconcile with profit. Or they should.
? It's right on their public statements.
The components of it are not known, but then again, same thing applies to their cash flow.
Like Amazon was known for years to intentionally not make a profit. They arranged their business so that all the money they made got plowed back into the business in such a way that they could claim a slight loss.
That was in their control to some degree.
No, absolutely not. There are well accepted accounting principles.
If a company wants to re-invest, then they can do that - but 'profit' is a material, objective thing, of course it changes profit, but it also would change 'cash flow'.
Financial accounting is a real thing, not any kind of fiction.
It gets to be fiction when there are things that are difficult to account for, or intangible things like goodwill.
But if they book a sale on Dec 1 - then that's revenue, even if the money doesn't come in until 3 months later.
I really wish goodwill was called "acquisition premium" and everyone would get it.
Technically yes, but really no.
Most other assets have an objective value.
When companies buy others, they are buying brand, talent, future revenues, often at crazy massive premiums. That's where the inherent intangibility comes in.
There's just no way for investors to really nail down why a given acquisition might be had for this or that much.
Companies are bought for often nebulous reasons, so these writedowns often skew the earnings in weird ways.
So it's the inherent intangibility in that price ... that drives the ambiguity of a lot of goodwill.
But I get what you are saying, technically it's not rocket science.
While you're technically correct that there are well-accepted principles, they don't always have much bearing on whether a company will be solvent, or easy to finance.
Example 1: Amazon's core retail business. Not very "profitable". Yet, it provides a massive amount of float through their ability to get inventory quickly from suppliers on long payment terms (30-60 days), that's sold to customers in something like 7-14 days with immediate collection. That means Amazon has something like 2-6 weeks cash, at hundreds of billions/revenue per year (8-40 billion in interest-free cash), as effectively an interest-free loan. That might not be profitable but it's very easy to see how that allows cheap financing of capital-intensive investment. Amazon is explicitly run with emphasis on cashflow dynamics (less on profit). It's worked exceedingly well for them.
Example 2: A hotel might run very profitably on a unit basis but require so much upfront capital to finance that it's practically impossible to build.
My point isn't that accounting isn't "real". Money is also in some sense a "shared fiction" [1] and yet it's quite real. It's just that looking merely at accounting profit/loss doesn't really tell you much about the operational dynamics of a company. It took me a really long time to understand this.
[1] From "Sapiens", a great book, explaining the role of fiction in real-world decision-making and beliefs.
I think most people get this, this isn't really one of those magic things.
In both cases you've described 'profit' is still 'profit' in the generally accepted sense, and we have cash flow statements to help us understand that.
Your description is confusing itself.
GMV is total retail value of transactions through a C2C type of business. eg ebay GMV would be the gross dollar value of all transactions. ebay revenue would represent ebay's total commissions, listing fees, and other income from being an agent in the sale.
So, while GMV is truly, quoting you, "all the payments Uber took in", because for Uber (unlike ebay) you don't pay the driver directly but rather all transactions are brokered by Uber, it is more clear to say that GMV is the total value of all rides. While stating that it's money taken in by Uber is true, it isn't as clear a description when you're trying to explain GMV.
> If an article said "revenue" without further qualification and it was a marketplace business, I'd probably assume they were talking about GMV.
I'd assume revenue, because GMV is not revenue. If only 1 number is reported, revenue, or net revenue if you will, is what we care about so that's what I'd assume is being reported. GMV without take rate is not that interesting.
Here are a couple links that might shed some light:
https://en.m.wikipedia.org/wiki/List_of_venture_capital_firm...
https://nvca.org/pressreleases/investment-venture-capital-ba...
*BTW, I’m actually surprised it’s not much higher than that, since private wealth in the US alone is > $100t. (https://www.wsj.com/articles/u-s-net-worth-surpasses-100-tri...)
Uber has progressed to where they're raising directly from the people venture capital funds raise from, cutting out the VC, a middleman.
In financial statements, revenue is stated with (can be subtracted by) cost of revenue. Say you're selling baked beans, the cost of revenue is your beans and the tin and associated packaging. So, the cost of revenue is the drivers pay (contractors, not employees, I guess) and probably a little more marketing stuff baked in. Uber's not public so we're not privy to that.
Net revenue is probably a lot smaller, and I'm frankly stunned they have 12k employees and don't believe it. That's especially because a large part of their business (call centre, customer support) is further contracted out and won't count as employee headcount. Wiki cites a BBC article that doesn't make it clear if these 'Uber employees' are actually Uber staff. I do know that Uber 'staff' working in China doing customer support work (probably far more is outsourced in places other than China, I'm just familiar with China) for a variety of outsourcing partners, for example Concentrix, and get a wage of average about USD 600 per month.
Their big costs are payroll, marketing, promotions (for both the driver and the passenger), and probably compute. In a lot of cases, including "mature markets" in the US, they end up being unprofitable per ride due to the number of promotions they run.
Sounds about right. Total loaded cost of a tech employee of a company with HQ in SF would easily average $300k.
[1] - https://www.theguardian.com/technology/2018/oct/16/uber-targ...
[2] - https://www.bloomberg.com/news/articles/2018-11-13/waymo-to-...
[3] - https://www.cnbc.com/2018/08/27/toyota-to-invest-500-million...
Won't they eventually hit a point where they promote their product less aggressively and generate significant revenue off the massive ride-sharing network that they've established?
As for large network effect this is my layman talking, but it's only important on markets with highly mobile population like US or EU. Problem of Uber is that high percentage of population in many countries rarely travel outside of their city, region or country. While you travel a lot Uber is great: you arrive and it's working almost everywhere, but if you stay within borders of your home city 95% of time you can as well use some NotUber app instead if you like it more of it cheaper.
And since back then we already had multiple taxi services (mostly without mobile apps though) with quite low price they likely spend a lot on underbidding them.
Also - Uber might be doing some big write-offs and dumping the ugliness of their spreadsheets now rather than later.
Basically they get rid of as much toxicity as early as possible, so the road to the IPO is more roses.
New CEO's often do that, dump the crap right away the first quarter they are there, so it can be written off as 'restructuring' by analysts. Uber does in fact have a new-ish CEO, maybe it's a little late for this, but not too late maybe.
https://news.ycombinator.com/item?id=18454254