Can someone with insight into the matter explain, from a high level, what the big concerns are over Ubers ability to run profitably?
In my naive view they are "just running an app" / acting as a mobility marketplace and they make money on each transaction. Given the traction and market dominance they have this sounds like a really attractive business. So how do they manage to run such big losses every year and which items on the expense side are so crucial for the business that nobody at Uber dares to cut into them?
The big concerns are whether drivers will continue to accept the pay they are offered. In 2018 they spent $837 million on excess pay to get drivers to accept certain trips. Insurance costs are also high, a large portion of their revenue.
Assuming their chart is representative of an average booking, $1 in excess incentives corresponds to a $10 booking. If so, 15-20% of their bookings appear to produce no revenue and cost money through excess incentives. They must be doing this to stay ahead of their competitors and/or encourage people to use the app.
Once the gross revenue picture is done, you have the relatively fixed operating costs. They are spending a fortune on marketing and consumer incentives, as are their competitors.
Overall they lost a bunch of money but made up for it through selling off the Russia/SEA businesses for a few billion. They also marked up their investment in Didi (which I believe they spun off before). But that's a paper increase.
So, they could become leaner. They also may continue to grow their way out of the hole. They do make money on most transactions. But becoming operating-profitable is a matter of putting competitors out of business and increasing demand for rideshare generally. They also need to get people to pay for the currently unprofitable trips. (Personally, I wonder how often they are leaving revenue on the table with their incentives.)
Trips where they pay the driver more than the customer pays.
They are constantly running promotions to encourage drivers. They are constantly running promotions to encourage riders.
It's not clear that they make very much if riders and drivers are at the regular rate either. They've got to pay the merchant fees for all the card not present transactions, and maybe platform fees to apple and google, too?
My guess is that their traction and market dominance are far more fragile than you think. Because their drivers are contractors and not employees, they can't be forced to only work for Uber, so even though they created the pool of drivers, they have not "captured" them. So a huge cost is the ride subsidies which maintain their market position. Once the ride subsidies end, there is no reason that a locally focused company can't compete for the same drivers and riders.
From what I've read, when Uber started their app technology was borderline magical (pushed the boundaries of what smartphones could do), but since that's no longer the case, there is much less of a barrier to entry.
It's not just an app. Apart from employing tons of highly paid engineers in Bay area and the rest of the world,they have to deal woth less glamorous,offline part of the business: local "recruitment" centres,where drivers have to be recruited,trained,etc.This is the probably in most larger cities.Also, the cost of acquisition of customers is in the tune of $billioms every year.Ads, subsidies, initiatives and etc. Uber absolutely can be profitable, however it feels like im order for it to be one it'd have to sack 70% of their back office,reduce the number of driver and agree to heavily adjusted valuation..
Right now I would assume uncertainty being one huge risk. They have so many laws to follow, and to some certain get around - I wouldn't be surprised if they have teams of high-$$$ lawyers (on retainer) in every single country they're operating in, and probably lobbyists too.
Then there's local competition. Most countries have their own uber-like startups, which may be competitive in other areas.
And as others have mentioned, this business model doesn't scale very well. For every new country they enter, they have to hire new teams, do the marketing, put themselves into the laws of the land.
But I specifically think the law-aspect is the largest risk to them. One local ruling could basically wipe out their margins and business model, and essentially put their investments at a loss in said country.
It's not like they can enter a country with a 100% absence of established Taxi companies - wherever they go, and have gone, there have been opposition that's tried to get them classified as a regular taxi company.
It is possible that consumer demand would greatly reduce if they had to pay prices that are sufficient to cover the cost at which drivers are willing to drive.
My general impression is that Uber and Lyft have artificially inflated the size of the ride sharing market by subsidizing rides with investor money.
In my naive view they are "just running an app" / acting as a mobility marketplace and they make money on each transaction. Given the traction and market dominance they have this sounds like a really attractive business. So how do they manage to run such big losses every year and which items on the expense side are so crucial for the business that nobody at Uber dares to cut into them?