Uber’s Confidential Financials Revealed. They Lose Money On Every Ride But Make it Up on Volume.

Uber is ostensibly valued at over $60 billion. To really be ‘worth’ that they have to grow rapidly, and arguably beyond on demand ridership into a ‘transportation logistics company’ moving goods and not just people. And they have to actually make money.

While there are certainly network effects — the more consumers use Uber, and the more drivers offering rides on their platform, the more valuable they are. The first person with a fax machine had a useless piece of equipment. There was no one to send them anything, and they couldn’t send a document to anyone else. The fax machine became more valuable the more people that had them. But even there, when’s the last time you sent a fax? I believe I’ve sent two in the past year.

There are few barriers to entry (although each time Uber works with a local jurisdiction to regulate the industry, more barriers go up). That’s why investors keep putting money into Lyft. It isn’t a winner take all for all times market. Eventually Uber has to earn profits.

And it turns out that one reason they’ve needed to raise so much capital is because they lost about $1 billion during the first 6 months of 2015. They’re spending big money to expand into new markets. For all of the complaints by drivers – especially in California, arguing they ought to be reimbursed for miles as employee business expenses, for instance — giving drivers an average of 80% of each fare isn’t enough to cover their costs. They’re investing in technology. They invest in bringing drivers onto the network. They invest in attracting new customers. And they build infrastructure in new cities and countries around the world. And that’s expensive.

Uber is indeed a tough master to work for, except for anyone else that most drivers would work for. Apparently it’s tough to attract cooks in Britain because of how much Uber is increasing opportunities in the UK.

Oli Khan, the owner of the the popular U.K. Spice Rouge restaurant (and past winner of England’s National Curry Chef of the Year prize) says it’s harder than ever to attract talented cooks to work in his kitchen because of Uber. In a fascinating FT.com look at the British curry trade in crisis, Khan tells reporter Malcolm Moore:

“A lot of people in London have joined Uber . . . including chefs, tandoori chefs, waiters, managers — even the owners of restaurants….We do not have the profits we used to and now a lot of people value the freedom of that life…In a cab company you just go there and drive the car.”

In many ways, Uber is like the First CityWide Bank of Change.

A lot of people don’t realize that change is a two-way street. You can come in with sixteen quarters, eight dimes, and four nickels – we can give you a five-dollar bill. Or we can give you five singles. Or two singles, eight quarters, and ten dimes. You’d be amazed at the variety of the options you have.

…All the time, our customers ask us, “How do you make money doing this?” The answer is simple: Volume.

In other words, Uber loses money on each trip but they make it up in volume. (In fact, the marginal trip isn’t done at a loss, it’s just that revenue net of payments to drivers isn’t enough to cover Uber’s overall costs.)

That can only last so long. Can Uber grow enough that critical mass actually entails lower costs and they don’t have to raise prices? Or when Uber starts trying to make money what does that look like? Are the riders still as loyal, or does that mean there’s room for competition?

After losing that billion dollars they had over $4 billion cash on hand and they’ve since raised more. They believe they might earn $14 billion over the next four years. And they project earning $8 billion in 2019. Of course every business is profitable in Excel.

See Uber’s financials here.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. I send and receive faxes of confidential information regularly.

    I use Uber far less frequently than the fax machine.

  2. They are still in that stage Netflix was in when they mailed DVD’s. It will take a few years and as city populations increase it becomes more viable.

  3. @ David G

    I suspect that someone who routinely references the interweb may be too cool to use a fax machine…

  4. Took Amazon 10 years to have a profit, and another 10 or so before the second one….and investors dont care…

  5. @David G Clearly the VC’s see a different picture than you paint, otherwise they’d be investing in fax technology as opposed to Uber. 🙂

    Uber has massive legal and lobbying costs right now as they try to break into a dizzying array of new markets worldwide. Eventually those costs should subside (although it may take a number of years) and they should turn a profit. When you think about their model, their long term fixed costs are not that high when looked at through the lens of their anticipated revenue so eventually free cash flow should be quite positive. That is what has the VC’s salivating. It’s all about scale.

    I can’t recall another company that has grown as quickly worldwide as Uber has over the past few years. They obviously are aiming for world domination, and as long as their investors are willing to pony up the cash to fund this explosive growth, they can continue the joy ride. Yes, they may have to raise prices eventually, but they don’t have to be the cheapest around. As long as the are cost competitive with other transportation options, and more convenient (which can often be the case even today and it will get even better over time), then continued growth should not be a problem based on my personal experience and everyone I’ve ever talked to that’s used the service.

  6. The following is my opinion of Uber, not ridesharing in general.

    Uber’s business model also appears to be that drivers make a loss which is somehow made up by volume.

    For example, the per mile rate in Detroit is now $0.30, so a driver nets $0.24. Any driver taking such work is losing 30 cents per mile, based on IRS rates, hoping to make it back with the 24 cents they earn per minute. So in a perfect hour of driving but not moving an inch, the driver could at most earn $14.40 per hour. Any actual miles driven would cut into this and obviously in the real world a driver is going to be doing a lot of waiting or dead-heading.

    Detroit is currently an extreme example, but other markets have $0.65 mile rates with $0.15 minutes. The math there is just as bad. Uber ‘guarantees’ to drivers are close to worthless and do not give drivers even the security of a minimum wage job.

    As a consumer, these rates push me away from Uber. The only drivers who will tolerate such rates will be desperate/innumerate. I don’t have high confidence for such persons to have an adequate maintenance schedule for their vehicles.

    As a human being, these rates make me wonder if we’re trading one evil – taxi cab medallion monopolies – for another, which is predatory employment. In fact I’m now much more sympathetic to the cab companies lobbying that the market needs to be regulated to prevent a race to the bottom.

    The stories from the UK of people quiting their jobs to become Uber drivers may be true, but experience here shows that it will be a short-term bubble. I live in a major US Uber market and not one driver in the last few months has a good word to say about them. A year ago (when it was new) it was the exact opposite. Having your rates cut to the bone does that to people.

    So, sadly, I now want Uber to fail. Because Uber being successful doesn’t sound good at all.

  7. @jonathan I’m not saying the projections are wrong, just that the business doesn’t have huge barriers to entry and needs to grow substantially to achieve the valuations at which they’re raising money. Of course we do not know all the terms under which they’ve raised the money, for instance much of the $6 billion raised could be in a first-position such that as long as Uber’s ultimate valuation is over $6 billion they recoup the investment in full. That would make the headline $60b+ valuations somewhat suspect 😉

  8. @Martin

    I mostly agree. The benchmarks for cabs are $2/mi with no time charge unless the cab is operating before ten mph. Wait time is anywhere from $18-$36/hr.

    At some point, the drivers will have to wise up and quit. If they don’t, does that mean uber is profitable for them at the margin?

  9. @gary I think the UK story doesn’t tell us much about the US – the UK social safety net is significantly more robust than the US. If you work for a UK curry shop or Uber UK you still have health insurance, you still get social security, etc. If you work for Uber US you are an independent contractor, you don’t get health insurance, and Uber US is absolutely not paying FICA.
    I take uber once or twice a month and I usually chat up the drivers about why they are driving. I can’t think of a single person who left a good job to drive – everyone is either making extra cash or bored or trying to get a better job (school teacher during the summer, e.g.). And I have met a few (foolish, I think) guys who went all-in and bought a Prius to drive full time. I think the low class drivers may come some day – but with the price of gas down I think it’s a slightly better proposition than in was a year ago, and the machine continues to operate. The cost of hiring new drivers in existing markets would be a sign of huge churn, however – and that could signal a serious issue.

  10. @Dan how much of that $2/mi and $36/hr go to the driver, how much to the cost of the gas/car, and how much to profit / medallion? My question has always been, is there a middle ground of an Uber that has employees and cars but doesn’t pay the overhead of some nonsensical licensing scheme (medallions owned by rentiers)? The price would be higher but we have really no idea how much higher – except it couldn’t be higher than existing taxi rates.

  11. @martin

    ‘As a human being, these rates make me wonder if we’re trading one evil – taxi cab medallion monopolies – for another, which is predatory employment. In fact I’m now much more sympathetic to the cab companies lobbying that the market needs to be regulated to prevent a race to the bottom.’

    A very pertinent paragraph, risk transfer is not a business model. At the moment all uber is is a brand, a marketplace and a way of allowing passengers to take a calculated risk on a ride with a stranger. I’m not sure there’s enough value in that to make it a sustainable business – sustainable in that it is profitable for Uber and viable for it’s drivers.

    This leaves uber in a position where they have to cut costs or raise prices. I believe that they believe that the future is to cut the drive out of the equation, given their investment in autonomous vehicle tech, but that would make them a very different company; unless they can find a away to get others to finance the vehicles they end up with the cost of the vehicles on the books.

    It will be interesting to watch.

  12. Awfully misleading to say in the title that uber “loses money on every ride” (i.e. every marginal ride meaning negative gross margins) and then reveal in the article that uber does in fact have positive gross margins. Say what you want about uber’s valuation (I’m certainly not a buyer at the current hysteric price), but it is not at all unusual for early stage ventures to operate in the way uber does (highly cash flow negative) – otherwise there would be no need for venture capital…

  13. One thing to remember is that Uber’s end game is not to be the world’s taxi company. It’s to be the world’s transportation company. They are investing heavily in driverless cars and (probably) in pushing legislation towards that end. Imagine those margins when, say, we don’t need drivers at all…

  14. Thanks for the reminder on the SNL commercial. I thought I was the only one who remembered it.

  15. Martin said it best.
    And Uber won’t even last until the days of driverless cars,… because there aren’t enough foolish people who will keep working for them in the near-term. The sentiment of Uber employees against their own employer is so negative that the business will only stay functional as long as they can keep seducing new drivers. But the pool of potential drivers still unaware of the losses they’ll incur while driving for Uber is shrinking, and rapidly. The few remaining that are mathematically challenged so unable to compute their losses as an Uber employee are NOT the type of people that customers who pay for a driving service want to ride with.

    In summary, Uber makes a profit only as long as they can keep enticing drivers to absorb the losses. As the pool of potential drivers shrinks, the brand gets junkier.

  16. Uber driver here,

    Uber keeps slashing the prices. At this rate its just not worth driving for Uber. Plain and simple. Uber’s promises are worthless. They have no credibility. Most of the Uber drivers I have spoken to are extremely angry with Uber. Many have stopped riving or reduced their hours drastically. We are waiting for some other company to come to our city… we have heard good things about Lyft. Uber don’t care for the drivers and would do anything to screw drivers any way they can, even though they would be nowhere without its drivers. If things don’t change quickly, Uber is doomed !

  17. uber’s whole game now is to offer riders fares that are so low that only a math-challenged moron or truly desperate person would provide services in THEIR personal automobile for less than minimum wage.

    They are STEALING the auto equity, insurance and gas money of their “partners” under the guise of employment

    Whatever the driver “earns” is lost in gasoline and auto depreciation.

    Expect service levels to COLLAPSE in the very near future.

    Free water and gum? Open the door? Clean car? Help with your luggage?

    Not at these rates.

    Passengers are now LUCKY if anyone shows up at all.

    Especially for the short trips.

    Think you can pay drivers to drive their own cars 50% less than taxi cab fares and maintain any level of service whatsoever?

    Think drivers will safely and happily pickup your brats from school for 3 dollars?

    Or take you to dca or union station for 8 dollars?

    In MY CAR?

    Think again.

    Stay out of MY car, you cheap, self entitled bum.

    Take a bus.

    Riders will soon be lucky to find a driver with a 4* rating and the quality and cleanliness of the cars will soon rival those of taxicabs.

    You will get what you pay for.

    The riders and uber are now HATED and RESENTED by the drivers as a result of uber’s sadistic attitude towards its “partners”.

    These criminals are such despicable cowards that they have no physical address.

    You won’t meet a nastier collection of sociopaths than uber management and investors outside of a prison

    * written one year ago

  18. For a country founded on individualism, there sure are a lot of socialists in these comments! I really don’t find Travis and team sociopaths, and I’ve met many of them. Rather, it’s a business model that needs lots of riders and lots of drivers to work, seeking equilibrium. Drivers like getting paid a lot, so in the early days there were fat incentives to get people to sign up. Customers like cheap rides, so low rates and sign up incentives to get the base established. As you change that to work towards a breakeven business model (massive losses are not sustainable forever), there’s going to be unhappy customers (surge pricing) and unhappy drivers. But long term, I believe there will be an equilibrium that works for all. It might not involve

    Bottom line, the valuation is based on utilization rates. Airplane utilization rates are now in the high 70’s%; hotel occupancy rates are in the mid- 60’s. Car utilization rates are around 5%. Both Uber and self-driving cars are technology solutions to this problem.

  19. In NYC, Uber has captured almost all the outbound weekend airport trips. Let’s see, do I want to find a taxi or have one come to me? Some Uber drivers are inexperienced, but most seem to be former yellow taxi drivers. There are thousands of Uber and Lyft vehicles. They ain’t gonna disappear.

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