> I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail.
Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years.
Why do you believe they are destined to fail? Established markets have been profitable for a while.
As they have been for over a decade. Just not actually GAAP profitable, except maybe a one off sale to DiDi.
>> Established markets have been profitable for a while.
So what market is Uber not established in? Are they pouring their oceans of profit from New York, Los Angeles and London into building a business in La Paz? I am sure they are trying to grow in places but they are way past the point where their profitable markets could fund growth. But they don't seem to.
I am sure there is a profitable and enduring business in Uber in some markets and at some prices. I just think they know that the economic realities of that business would not support their public stock valuation. So they work on self driving and buy postmates rather than focus on those profitable established markets.
Uber's net GAAP loss, excluding losses from investments in DiDi and other companies, is around 300m last quarter [1] which is a ~1% loss on their gross bookings. Most of that is stock based comp. Their FCF loss was only 47m last quarter.
I know HN likes to hate on Uber and other gig apps but a 1% margin is something they can easily make up given their stated take rate on mobility and delivery is around 20%.
> So what market is Uber not established in
If you follow their earnings calls (or that of DoorDash as well), advertising is a huge growing market for these companies. My guess is they take on an airline business model: zero to slim margins on the core offerings, but huge money on advertising and ancillary sources of revenue (for airlines, this is credit card points).
Yes, Uber is close to break-even and they aren't going to just disappear. But there's still a big gap for them to close between "breaking even" and "profitable enough to justify a $50B valuation."
There's plenty of room for a moderate view in which Uber survives as a business but their investors are extremely unhappy.
Uber invested most of their money into self driving tech and it was a dead end. If it would have worked out we would be having a very different conversation. Now I think they are essentially break even until someone figures out self driving and buys them to deploy their fleet of self driving taxis.
In a recession some people suddenly are eager for any job, no matter how bad, driving down Uber's "cost of goods sold" i.e. driver fees..
But in general economic downturns are tricky, as they affect different groups differently - are the people who would suffer in a recession the same people who are currently using Uber?
That's not true, really, in this case with inflation.
There will be no point in taking such low paying jobs. We're already seeing massive shortages at the low end of employment - working for that cheap simply doesn't make economic sense.
Driver fees are already so low that between depreciation, gas, and your time, you're barely making ends meet driving. They can't squeeze the drivers any further, unless they only want people to be driving 15-year-old beaters.
Boy, this is an evergreen narrative on HN, but I don't really think it's true. The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile. Uber drivers make about $1-$2 per mile which is a pretty big margin.
Uber has been around for over 10 years now. Sure, not everyone is an accountant, but if Uber drained every driver's wallet, they'd have noticed by now. Interesting that it's usually only people who have never driven for Uber that claim it's completely unprofitable.
From the Uber fare estimator for a trip in East Lansing Michigan.
Per-minute
$0.17
Per-mile
$1.20
----
What is the catch?
Drivers do not make any money while driving to pick someone up or after dropping someone off. Often, when I tried out driving, about half the miles driven were without a fare.
Subtract the service fees from those numbers and it gets less lucrative.
Often pickup traffic was very "directional" people going to the bar at one time, people leaving at another, so often you would have to drive back to where you started the last fare for the next one.
Back when I used to work for a FAANG in advertising I looked at how much money Uber was spending on driver advertising. At that point, I became convinced that Uber were doomed.
> The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile
One thing to note about Uber drivers is they’re typically putting 50-75k+ miles per year on their cars. I’m curious what that does to those depreciation/etc figures.
If you assume 25k MSRP on a base model Prius, and that the car will sell for $5k after 150k miles (absolute garbage offer - an actual number would be something like $10k-12k in today's market), then you get a worst case depreciation of 13 cents/mile. Let's say a Prius gets 45 mpg, gas costs $5/gal which gives you 11 cents/mile. Factor in tires and oil/brake fluid changes and maybe you get another $2k all in costs over the 150k miles, which is 1.3 cents/mile.
All in costs around 30 cents seems right. That assumes absolute worst case depreciation too. And don't forget, the government lets you deduct 58 cents/mile off your taxes, so you actually make a profit off every mile driven.
Okay, that's my bad. But if you assume an effective tax rate of 15% (combined federal + state + SS + Medicare), which sounds about right for an Uber driver making 40k/year, 0.58 * 15% * 75k mi/year is an $6525 tax reduction. A quick look at an income tax calculator says someone in California making 40k pays about 6k in tax, so your credit per mile is 6k / 75k = 8 cents/mile.
Depending on your costs that could put you under 20 cents/mile in cost. And you get paid over $1/mile in practice, even on delivery orders. Really the only party getting screwed by gig apps is the government, because they get 0 tax revenue from these guys.
I made some comments below, the devil is in the details. It is not theoretical, I tried to Uber to challenge my notions about this.
Circa 2021:
The main point I would like to make is that in my market at the time, the mileage was getting paid was .76 a mile, as I look back in the app. At the time additionally was getting .11 per a minute fare. The main issue is that the mileage rate is for time that passengers are in the car.
But about half the time it was driving to a pickup location. So you are looking at an average of .38 per mile + .11 per minute. These were city miles, not quick highway miles.
So to pull one random example from my actual history.
I did a 6 minute and 57 second trip that paid 2.86. The distance was about 2.5 miles. So by your calculations we subtract .75. This leaves 2.11 profit. The issue is it pulled me 2.5 miles from my next fare, so you need to subtract another .75 to get back. So we are at 1.36. We also have another ~7 minutes of driving.
So in 14 minutes I made 1.36... So we are talking $5.80 an hour. This is pretty poor pay for the service provided. I might quibble about your numbers in my case because it was a 2020 traverse, that was about 35k and worse gas mileage. So I was probably doing worse...
HOWEVER, that's only part of the story. Uber has bonuses, so there will be a deal where for a particular weekend, if you do 40 trips (no matter the length of each trip, which was strange to me), they might pay an additional $80 bonus. So that adds an extra $2.00 for that particular trip, if you meet the quota. And is nearly as much as the base rate. So that will push the earnings to ~$10 an hour. Significantly better!
And that is where the VC money criticism comes in claiming the subsidization is what makes it work.
TLDR;
If you are very economical about the bonuses and surge rates (which the example was not) you can make better than minimum wage income, it is not a loss. But you have to be very savvy and strategic. But the bottom line is the base rates, at the time were a bit over break even, and very low if you had any down time. But the bonuses and incentives made it reasonable.
> And that is where the VC money criticism comes in claiming the subsidization is what makes it work.
It might seem like that, but +$2/ride still puts Uber in the black here. A ride is minimum $8-9 so they're making at least $5 on that ride.
Also, I think your example is not too great because low fare/short rides disproportionately screw you because Uber takes a flat $3 per ride as a "marketplace fee" in addition to their 25% cut. If that ride was 5 miles instead of 2.5, you'd make a lot more than double 2.86.
Uber drivers don't make anywhere near $1-$2 per mile. More like $0.50-$1 according to some Googling ($1 seems reasonable from conversations with friends who drive for them, here in Austin).
30 cents per mile costs is also extremely low, at least on average.
How many uber drivers are in Priuses? I haven't ridden in a single one...
How many people do you personally know that make their living as an Uber driver? I don't mean pensioners making beer money, or people doing it as a side job, here.
I know one. He's been doing it for a year and half, or so. He doesn't own his car. he has to lease it on a weekly basis, and he's paying through the nose for the privilege. He's doing it because his credit is shit, and he has no savings to buy a car outright.
He's getting ahead, but if driver rates get cut, he'll be going right back to being a line cook.
It will vary by year and city, but generally speaking Toyotas tend to dominate ride share with Camry usually #1, then Prius, Corolla, and RAV4. However, the long tail is very long and you're about as likely to get a ride in a less cost effective vehicle.
the first sentence is a terrible take unfortunately, prius one of the most popular taxi and ridehailing cars ever, it's sully arund >50% of car supply in most western cities.
As usual, you are conflsting your singular consumer experience of Uber with the global business giant Uber.
Oh, I don't disagree about taxis. Priuses are everywhere in that space, and for good reason. If you are going to make a living driving, you should probably drive one.
I do disagree on Ubers. I see very few Priuses, but there's a different explanation to that, that I missed. Casual drivers, people doing it as a side thing, or for beer money didn't optimize their car purchase for the purpose of driving a taxi. I suppose full-time drivers are more likely to drive one.
Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years.
Why do you believe they are destined to fail? Established markets have been profitable for a while.