This may sound outrageous or unbelievably funny to the average person who is not technically inclined, they may wonder, how can an online service like Uber, a company that connects you to a ride make a loss? They just connect drivers to riders, and then take a percentage of the fee, so how on earth do they make a loss, you may wonder.
Uber is an American multinational ride-hailing company offering services that include peer-to-peer ridesharing, ride service hailing, food delivery, and a micromobility system with electric bikes and scooters.
In simple accounting terms, profit is revenue less cost, and if the resultant is a negative, or cost is greater than revenue, then there is a loss. So for Uber to record a loss, they should incur some cost first. Now considering that Uber offers a 24/7 service, that is, their service is always online and available at any time of the day or night, imagine the number of computer servers that are dedicated to this service, the volume of bandwidth, the fail-over, and data replication tools or mechanisms that are implemented, and the number of employees required to keep the service up and running. Uber has a staggering 22,263 number of employees worldwide. So imagine the kind of cost the company incurs daily, monthly, and annually!
Uber reported its fourth quarter earnings on Thursday, in which it posted a net loss of $1.1 billion. It was not quite as much as the previous quarter, when it lost $1.2 billion, or as stunning as Q2 (Second quarter), which saw Uber lose a jaw-dropping $5.2 billion in just three months.
Overall, Uber says it lost $8.5 billion in 2019 — a sign of just how difficult Uber’s path to profitability will be. That said, the company says it is confident that it can finally start making profits at the end of 2020.
Uber has been under pressure from investors to stem its enormous losses and show how it can start posting a profit. Uber and Lyft, which both went public this year, have set records for the amount of money lost in the run-up to their respective IPOs. And since going public, both companies have continued to lose money, raising questions about the long-term sustainability of app-based ride-hailing as a business. Uber had to lay off around 1,000 workers last year amid restructuring efforts.
The company is also facing enormous pressure from regulators as they are still struggling to comply with California’s groundbreaking new gig work law that makes it harder for the company to classify drivers as independent contractors. It also lost its license in London after regulators identified a “pattern of failures.”
Originally, Uber said it was targeting 2021 as its first profitable year. In a call with investors, Uber CEO Dara Khosrowshahi said he was challenging his employees to move the timeline for profitability up to the fourth quarter of 2020. We hope they achieve their target at the set timeline.