On April 11, Uber registered for an initial public offering of stock (IPO) with the government. As part of that filing, the company revealed more about its financials than is required by law. The document gives an insight into Uber’s business challenges and the evolving market of rented mobility.
Included on page 3 of Uber’s prospectus was estimated market share in the ride share sector. Uber is a global company, with operations or stakes in 63 countries on six continents. In the U.S. and Canada, Uber estimates that it has 65% of the ride share market, closing in on a monopoly.
That near-monopoly power is the reason why Uber is reported to be valued at $100 billion, while U.S. rival Lyft — which went public on March 29 and closed that day at a $29.5 billion valuation — is currently valued at around $17.4 billion.
Both operators are running at a loss. In Uber’s filing, it reported that it lost $1.8 billion on revenue of $11.3 billion, when not counting revenue from the sale selling parts of its business and other transactions. Uber may have market share, but it hasn’t been able to turn a profit quite yet.
Uber elaborated on its strategy for improving market share and moving towards profitability. Page 8 reads, “Our strategy is to create the largest network in each market so that we can have the greatest liquidity network effect, which we believe leads to a margin advantage.” The prospectus goes on to discuss Uber’s well-known practices of giving signing incentives to drivers and discounts to riders and Uber Eats users to boost its user base and create a feeback loop of increasing market share and profitability.
One issue, however, is that those incentives are burning up cash while user growth is slowing. At the end of 2016, Uber’s user base was growing at an astonishing rate of 36% quarter-to-quarter. After major scandals led to a change of leadership, user growth is hovering around 10% quarter-to-quarter.
One other number to note in the prospectus was Uber’s year-over-year quarterly gross bookings — divided between ridesharing, Uber Eats, and “other bets.” In the last quarter of 2018, Uber made $14.2 billion in gross booking for the past 12 months, including $11.5 billion in ridesharing, $2.6 billion in Uber Eats, and $129 million in other bets. Importantly, the “gross bookings” definition does not include user discounts. When we subtract 2018’s gross bookings of $14.2 billion by its revenue of $11.3 billion, it appears that Uber spent around $2.9 billion on customer incentives, or over 20% of gross bookings, essentially list price.
I don’t use Uber, but I would be interested in the experience of users with discounts and promotions. If you ride with Uber, or drive with Uber, what has your experience been? Share your stories in the comments.
Controlling the future of mobility
Uber and Lyft are locked in skirmishes around the world to control the future of mobility. While Uber attempts to expand its Jump bikes and electric scooters, Lyft has monopolies on bike share in Chicago, Minneapolis, and other areas. Jump bikes operate in 19 U.S. cities and two outside the U.S., with scooters in 12 of those markets. Lyft-owned Motivate operates in nine U.S. cities (including New York’s Citi bikes, DC’s Capital Bikeshare, and Minneapolis’ Nice Ride). Lyft-branded scooters operate in 15 U.S. cities across the sun belt, from Los Angeles to DC.
Another competitor is Lime, which operates electric bikes and is most well known for their electric scooters. Lime operates in over 90 U.S. cities and dozens of cities outside the U.S., mostly in Europe.
Bird has also been a competitor in the scooter market, operating in 76 North American cities, and 12 cites outside North America, mostly in Europe.
In Minnesota, Uber and Lyft are competing for market share in six cities across the state: Duluth, Mankato, Minneapolis, Rochester, St. Cloud, and St. Paul. Electric scooter operators only compete in the Twin Cities.
Will the discounts continue, or will one operator take control and become profitable? Billions of dollars in investment is riding on the answer to that question. It will hinge on whether companies like Uber can continue to burn billions of dollars in investor money to tick up their market share quarter by quarter. If the money runs out, we could be set for a competitive marketplace among huge devaluations. If the investment continues, there could well be a ruler of ride share, or at least regional monopolies.
Did you take a ride share trip recently? Have you been hooked to discounts for food delivery services like Doordash and Grubhub? What was your experience with electric scooters? Share your stories and your insights in the comments.
I think Uber and Lyft both know the future is self-driving cars. Making money on manually drive rideshare in the short term is secondary to getting market share so they can be the dominant TaaS provider in the region when that occurs. The question is if they burn all their capital so fast they go under before that happens.
I don’t use food delivery services because it’s cheaper to go get it myself in my own car rather than tipping a driver and possibly paying a delivery fee, as well as pizza places often have “Carryout Only” specials.