How Does Uber Make Money, and How Do They Keep Losing It?


Uber

Hailing a cab used to be a pain. In New York, you had to actually stand in the street to hopefully flag down a taxi. When that didn’t work, you would have to call an often-unwelcoming person to arrange for a pickup in a beaten-up town car with a driver that would charge you an arm and a leg.

These days, however, hailing a cab is as easy as pressing a button on your phone. Thanks to ride-sharing services and e-hailing apps, you can wait inside your nice, warm home until a nice, clean cab arrives and waits for you to get in. It’s easy, it costs just as much as traditional cabs (perhaps a bit less), and it’s effortless.

When it comes to ride-sharing services, no company does more business than Uber. While Lyft, Juno, and several other services compete with the San Francisco-based company, Uber is easily the most popular service among them all, raking in billions of dollars a year thanks to cab passengers like yours truly.

While Uber makes billions in the U.S. and countless other countries where they’re available, they’re also losing billions, too. To get an idea how this is happening, however, you have to understand how the company makes their money in the first place.

Uber relies on drivers, independent contractors, and some employees for their revenue.

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The company’s business model is simple: drivers install an app (sometimes on a phone given to them by Uber), pick up passengers, and automatically give a percentage of their fare to Uber. According to drivers we spoke with, Uber’s cut is around 30% in New York City, though it varies in other locations.

Uber also has courier services, delivery services, and other endeavors separate from their taxi business.

Uber

In New York and other major cities, Uber can deliver food from restaurants that don’t usually deliver, as part of their UberEats program. You can also use couriers and messengers through Uber to deliver letters, packages, or messages. The company is constantly adding new services to supplement their main ride-share feature.

Aside from generating revenue, Uber is constantly raising money from venture capitalists.

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Private investors and venture capital funds give Uber money for an ownership stake in the company, thereby valuing them at a certain price. For instance, Uber raised $12.5 billion earlier this year under the estimation that the company is worth $65 billion, meaning Uber theoretically exchanged around 20% of their company of $12.5 billion dollars. This money will help the company grow to the point where they could go public in the future if they choose.

According to insiders, however, the company is losing a whole lot of money.

Uber allegedly lost $800 million in the first three months of the year, and $2.2 billion in the first nine months of the year. While the company’s revenues are supposedly at $5.5 billion in the first nine months of the year, a loss of $2.2 billion is staggering, even for a major company like Uber.

No one knows why Uber is losing so much money.

Flickr/Uber

Earlier this year, the company pulled out of Chia, but made $1 billion in the process after Didi, a local competitor, bought their businesses. They’re investing heavily in self-driving cars, which will save on labor costs (read: cut jobs) in the future, but developing those cars can be costly. That, and they’re not particularly road-ready yet.


Should you invest in Uber? Unless you’re a venture capitalist with billions, you can’t. The company is still a private company, and will likely remain that way for the foreseeable future. Yet if they go public and still have a problem with losing billions a year, why would anyone want to invest in them?