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Understanding Why Uber Loses Money

Morning Report: Uber’s latest numbers are out. Let’s avoid the big, confusing numbers and think about why the company loses money in simpler terms.

Uber’s fourth quarter financial performance was released to The Information. Despite its status as a private company, Uber regularly discloses its financial results, in part, to the media.

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But despite these regular disseminations, the fact that Uber loses lots of money isn’t widely known. To pick one example, during my last Uber ride (Crunchbase’s office to SFO), my driver and I got to talking about Uber itself, which is common enough. As it turns out, we’ve both met Travis. But when I mentioned that Uber actually loses money during the conversation, the veteran driver was surprised. They do?

So let’s understand that. Yesterday, our own Holden Page broke down the numbers: billions, margins, and more.

But that might not be your cup of tea. So, returning to our prior source, here’s how I would explain how Uber loses money in simple terms:

  1. The bulk of Uber fares go to drivers, not the company. In the last quarter, Uber paid out just over 80 percent of the fares paid on its platform in the quarter in the form of driver pay and incentives to both riders and drivers.
  2. Uber picked up 19.5 percent of the money that flowed through its platform. But that revenue has costs. According to The Information’s math, Uber’s cost of revenue was 9.9 percent of all fares during the same period.
  3. That means that the 19.5 percent cut (gross fares minus Uber’s payout percentage) can’t all go to covering Uber’s corporate costs (called operating expenses). Indeed, 19.5 minus 9.9 leaves just 9.6 percent of gross fares during the quarter to cover Uber’s operating costs.
  4. During the quarter, Uber’s operating expenses were 15.6 percent of gross fares were greater than its available pool of revenue left over to cover those costs. Or, in simpler terms, 9.9 minus 15.6 is less than zero. Therefore, Uber loses money.
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The red ink continues from there. If you subtract Uber’s operating expenses from its net revenue, you’ll find that it produces a far more bullish number than what the firm’s GAAP net loss shows. That means that there are other costs that don’t fall under the umbrella of operating costs that Uber pays out. The firm actually lost nearly $1.1 billion (GAAP net income) against just $2.22 billion in net revenue in the fourth quarter.

It works out to a -49 percent GAAP net margin. Uber posted around 61 percent net revenue from Q4’16 to Q4’17. That doesn’t quite square out to the rule of 40.

From The Crunchbase Daily:

Norwest closes $1.5B fund

  • Silicon Valley VC firm Norwest Venture Partners raised $1.5 billion for its largest fund ever. It will use the money to make early through late stage investments in technology and healthcare companies.

JD Logistics raising $2.5B

  • JD Logistics, the logistics spin-out of Chinese e-commerce giant JD.com, is raising $2.5 billion from a group of backers including Hillhouse Capital, Sequoia China, China Merchants Group, Tencent, and others. The deal lets JD.com retain an 81 percent stake in the company.

Uber losses shrink

  • A release of [Uber](https://www.crunchbase.com/organization/uber)’s Q4 results shows the ride-hailing company continues to stem losses in pursuit of profits. Gross revenues rose to $11.1 billion for the quarter, while losses reportedly narrowed to $1.1 billion.