Profit for Uber in London rose by an incredible 96% in 2022. During the pandemic, they lowered prices but increased them again once Boris lifted restrictions. Uber’s higher prices, as well as an increase in people taking rides, is the reason for the skyrocketing figure.
Does this figure tell us something about the ride-hailing giant, or is it simply the story of ground transport over the last two years?
It’s not just Uber London that’s doing well. Their parent company in San Francisco had a great year too. They recorded over $429 billion of gross bookings this summer.
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Turnover is still an issue. Driver shortage is still an epidemic
Despite higher profit margins, Uber’s overall turnover actually went down slightly. The reason won’t be shocking to anybody linked to the ground transport industry: a shortage of drivers. Uber has described difficulties convincing drivers to come back to the platform after Covid restrictions were lifted.
A journalist from The Times reported that Uber was ‘able to save money on employment costs since they had fewer employees on average’. Regular readers of the Plan Blog will know that use of the word ‘employees’ has been disputed by Uber for the last 5 years or so.
Since their unsuccessful appeal to the The Supreme Court, Uber drivers are now formally recognised as workers (not employees), enjoying benefits such as holiday pay, the national minimum wage and the chance to opt into a pension scheme. This took place after drivers, alongside the App Drivers and Couriers Union (ADCU), took the Ridehaling giant to court.
Uber had plenty of money in, but plenty of money out
In recent times the ride-hailing behemoth has also agreed to pay £615 million to HRMC to settle an investigation into unpaid tax. Uber London said HM Revenue & Customs had been seeking VAT on “the service fee that we charge drivers, both retroactively and prospectively”.
Turnover dipped from £51 million to £48.6 million, but pre-tax profit rose from £1.2 million to £2.3 million. Uber recorded Gross bookings of $429 billion between July and September.
Uber’s business model challenged
Len Sherman, a professor at Columbia Business School, wrote a Forbes article outlining Uber’s quest for growth and record lack of profit. He notes that CEO Dara Khosrowshashi has failed to mention that Uber’s recent growth is due to a simple and rarely-mentioned fact. In the US, he states that Uber has been raising prices four times faster than the rate of inflation while “squeezing driver pay”, in the name of increasing profit.
Uber’s path to genuine and sustainable profitability seemed difficult to navigate for many industry experts. Perhaps it is a riddle best solved by silicon valley geniuses. Sherman presents the idea that higher prices for riders and lower pay for drivers seem to be that path, in Uber’s flagship market of the US at least.
Uber’s math problems
Uber has received an enormous amount of private and public capital investment, including venture capital funding and an IPO. The current boss Khosrowshahi is credited for losing as much money during his first four years as founder Travis Kalanick did in the company’s first six years. (Though the incumbent does has the pandemic impacting his stats.) Many believe Uber has raised and lost as much money as any startup in history.
“It’s about math and math always wins. And the math for a company getting to cash flow breakeven is you have to grow your revenues faster than you’re growing expenses.”
Khosrowshah said this on the ‘Winning In The Downturn’ podcast:
Colombia Business School’s Sherman says that with the era of cheap money over, growth over profits is no longer Uber’s priority. Without doubt, the two biggest levers affecting the company’s bank balance in the future are prices and pay. Sooner rather than later, both drivers and consumers may be impacted by measures aimed at achieving that long promised profitability.
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