Uber is one of the most notable technology start-ups from Silicon Valley, which has earned global recognition and is used by millions of people around the world. Uber revolutionized and industry in the sphere of ride-sharing and caused many traditional types of businesses, such as taxi, to lose their clients and a considerable market share. Yet, despite having a 90-billion valuation, Uber has been consistently reporting annual losses, yet its new strategy may potentially enable the company to start generating profit.
Uber started as a ride-sharing company in the luxury segment, yet over the years, its business has grown substantially and now includes food delivery, freight transportation, electric bicycles, and other spheres. Despite the fact that the company was established in 2009, the new era for Uber began in 2014 when it became a truly global brand (Moore & Lee, 2021). Nowadays, the company is valued at $90 billion, which makes it one of the most valuable companies worldwide and the absolute leader in the ride-sharing business (Moore & Lee, 2021). Nevertheless, as mentioned above, the rapid growth of the company was accompanied by substantial financial problems. According to recent data, in 2020 alone, the company reported a loss of more than $6 billion (Moore & Lee, 2021). There are many factors which contribute to the poor financial performance of the company which needs to be explored.
One of the main factors which play a major role in the company’s inability to generate profits is the competition and the need for the company to adjust to it. Uber is not the only ride-sharing start-up on the market, and therefore it faces pressure from its competitors. For a long period of time, Lyft has been the main competitor of Uber, which prevented the latter company from acquiring more clients (Sherman, 2017). The lack of monopoly in the ride-sharing market is beneficial for consumers because the existing companies compete for clients and thus have to reduce their fares (Sherman, 2017). Yet, such an arrangement has been depleting Uber of potentially higher revenues because the company has to keep its profit margins at a low level. Therefore, to stay relevant and competitive, Uber has to devise ways to reduce its prices.
Another factor which does not let Uber achieve a steady stream of annual profit is the expansion strategy chosen by the management of the company. As mentioned above, since its launch, Uber has ventured into several different spheres, including delivery and transportation. Such a strategy involved conducting acquisitions and mergers, which were in many instances quite expensive. For example, in 2020, Uber acquired Postmates, a food delivery app, which was one of the main competitors for Uber Eats, for more than $2 billion (Bursztynsky, 2022). Such acquisitions directly impacted the ability of the company to generate profits. At the same time, the active expansion strategy of Uber shows that the business possesses resources and does not struggle financially. Essentially, the company’s management is confident that not making a profit and continuing investing in prospective companies and industries will eventually yield more benefits. Yet, not all acquisitions of Uber have been successful, and the company had to divest in some cases, once again encountering losses.
Additionally, apart from competition and expansion strategy, there is a host of less impactful factors affecting Uber’s capacity to generate profit. For instance, the COVID-19 pandemic caused considerable disruption in Uber’s ride-sharing business since people preferred to stay at home. Yet, its delivery service, Uber Eats, experienced an increase in the number of customers and orders. Regulations related to ride-sharing in countries around the globe also negatively impact Uber’s profitability. For instance, in Saudi Arabia, the government introduced new rules for ride-sharing companies, including those stipulating that ride-hail cars should be no more than five years old (Nereim & Parasie, 2022). Such factors entail additional expenses for Uber, and they are also common in other countries which impose their rules and taxes on the company.
Nevertheless, recently, the company announced that it was planning on reversing its losses trend and actually generating profits. In order to achieve the goal, the company decided to redesign its approach to the provision of ride-sharing services. For instance, the company increased its fares for clients while simultaneously cutting expenses. Additionally, the company increased its operational efficiency by adopting new technological solutions. Uber Eats became one of the main sources of revenue for the company during the pandemic, therefore, Uber decided to focus on it more consistently. Thus, Uber has a plan to achieve positive EBITDA in the coming years and become a profitable business.
Uber is a company which has undergone a transformation from a start-up to a global business which is active in different industries. Yet, the high competition, expansion strategy, as well as local regulations prevent Uber from becoming a profitable company. For instance, company invests billions of dollars in new acquisitions in order to diversify its brand. Additionally, strong competition from companies such as Lyft make Uber reduce its fares and thus have lower profit margins. The novel approach of the company, which it recently unveiled, involving cost reductions will potentially enable Uber to generate profits and reduce losses.
References
Bursztynsky, J. (2022). After a rocky 2021, Uber may be a top pick in the new year, analysts say. CNBC.
Moore, E., &, Lee, D. (2021). Is Uber, valued at $91bn, on verge of a profitable future after a decade of losses? The Irish Times.
Nereim, V., & Parasie, N. (2022). Uber struggles in Saudi Arabia as rules of the road tightened. BNN Bloomberg.
Sherman, L. (2017). Why can’t uber make money? Forbes.