Three factors Hubert Horan, an expert in transportation economics, is probably the best Uber analyst around, so we were pleased to find his latest analysis in light of Uber announcing at the end...
Three factors
Hubert Horan, an expert in transportation economics, is probably the best Uber analyst around, so we were pleased to find his latest analysis in light of Uber announcing at the end of July that it had, for the first time ever, turned a profit for the second financial quarter of 2023.
And this is where it gets interesting. Horan identifies three factors at play. First, CEO Dara Khosrowshahi has ended the company's attempts for Uber to be something more than a taxi and food delivery company with an app. It sold off its autonomous vehicle technology division, which was chewing through cash with little prospect for a return. The dream of driverless, flying Ubers (or something...) will have to wait. It has also left markets where it has no chance of being profitable any time soon, such as Uber Eats' recent exit from Italy. This cost-cutting has saved valuable dollars.
Secondly, Uber has retreated from trying to be an urban taxi service for everyone, narrowing down its focus to areas "with the densest demand". Horan says this is a reversion "to the more economical traditional taxi approach", as parts of the city which are hard to get to and with few customers are inherently loss-making. Also a more narrow service focus mean drivers' (unpaid) waiting time is reduced, meaning the "total (Uber plus driver) revenue potential of each driver shift" is higher.
Finally, and most importantly, Uber has massively increased its 'take rate', the % of the revenue it takes on each journey. Another way of thinking about the take rate is that it's the rate of exploitation: the higher % Uber takes, the lower % the driver gets. As Horan's graph above shows, at the peak of the pandemic in 2020 and 2021, when Uber was suffering a serious driver shortage, the take rate was down at 20% and 19% respectively. In 2022 and the first half of 2023, it has averaged 28%, a major increase in Uber's take rate in two years.
(To be clear those are quotes from the article, which is commentary about other commentary, so we’re pretty far removed from the numbers.) “Take rate” here isn’t profit margin. All of Uber’s other...
(To be clear those are quotes from the article, which is commentary about other commentary, so we’re pretty far removed from the numbers.)
“Take rate” here isn’t profit margin. All of Uber’s other expenses need to be taken out of that. Google has their net profit margin at 4.27%. So it seems like they’ve cut their more speculative investments but there’s still a lot of overhead and maybe some of that could be cut to get a more operationally lean taxi company?
Not driving in unprofitable areas should be better for drivers, eventually, even though it’s worse for customers.
For a business that’s no longer subsidized by investors, all the money has to come from customers and now we see the results of that.
Three factors
Hubert Horan, an expert in transportation economics, is probably the best Uber analyst around, so we were pleased to find his latest analysis in light of Uber announcing at the end of July that it had, for the first time ever, turned a profit for the second financial quarter of 2023.
And this is where it gets interesting. Horan identifies three factors at play. First, CEO Dara Khosrowshahi has ended the company's attempts for Uber to be something more than a taxi and food delivery company with an app. It sold off its autonomous vehicle technology division, which was chewing through cash with little prospect for a return. The dream of driverless, flying Ubers (or something...) will have to wait. It has also left markets where it has no chance of being profitable any time soon, such as Uber Eats' recent exit from Italy. This cost-cutting has saved valuable dollars.
Secondly, Uber has retreated from trying to be an urban taxi service for everyone, narrowing down its focus to areas "with the densest demand". Horan says this is a reversion "to the more economical traditional taxi approach", as parts of the city which are hard to get to and with few customers are inherently loss-making. Also a more narrow service focus mean drivers' (unpaid) waiting time is reduced, meaning the "total (Uber plus driver) revenue potential of each driver shift" is higher.
Finally, and most importantly, Uber has massively increased its 'take rate', the % of the revenue it takes on each journey. Another way of thinking about the take rate is that it's the rate of exploitation: the higher % Uber takes, the lower % the driver gets. As Horan's graph above shows, at the peak of the pandemic in 2020 and 2021, when Uber was suffering a serious driver shortage, the take rate was down at 20% and 19% respectively. In 2022 and the first half of 2023, it has averaged 28%, a major increase in Uber's take rate in two years.
(To be clear those are quotes from the article, which is commentary about other commentary, so we’re pretty far removed from the numbers.)
“Take rate” here isn’t profit margin. All of Uber’s other expenses need to be taken out of that. Google has their net profit margin at 4.27%. So it seems like they’ve cut their more speculative investments but there’s still a lot of overhead and maybe some of that could be cut to get a more operationally lean taxi company?
Not driving in unprofitable areas should be better for drivers, eventually, even though it’s worse for customers.
For a business that’s no longer subsidized by investors, all the money has to come from customers and now we see the results of that.