Uber is expected to be the biggest IPO of the year and one of the largest in history. The ride-hailing company, which operates in over 700 cities and facilitates 17 million trips a day, is offering 180,000,000 shares and expects the price of each to be between $44 and $50. This means it is aiming for a valuation of up to $91 billion.
To be sure, Uber has not enjoyed unalloyed success over the past several years. It has experienced catastrophic losses in several quarters, as well as scandals involving its drivers and even its founder and former CEO Travis Kalanick.
Nonetheless, there's no denying that Uber has upended the traditional world of taxis. One need look no further than the many Uber-inspired companies to have emerged in recent years to recognize this company's success as a disruptor.
Uber drivers have been paid over $78 billion in total since 2015. But how does the company itself make money? In this article, we'll explore some aspects of Uber's business model and how it generates revenue.
It's Like a Taxi Company ... Sort Of
Uber charges its 3.9 million drivers a 25% fee on all fares for the use of its software, collection and transfer of fees, credit card commission and distribution of invoices to customers. The company has 91 million monthly active platform consumers, and revenue in 2018 was $11.3 billion. Over 80% of this revenue was from its ridesharing products, which totaled revenue of $9.2 billion and gross bookings of $41.5 billion in 2018. Uber defines gross bookings as the total dollar value, including any applicable taxes, tolls, and fees, of a service without any adjustment.
On first glance, Uber appears to be very similar to any other taxi company. It employs drivers in an expanding list of metropolitan areas, providing transportation services to users of all kinds. Customers hail cabs exclusively via the Uber app on their smartphones, paying at the end of the ride, while drivers utilize GPS and related technology to find the most efficient routes. The cost of each trip is calculated via algorithms that include factors such as distance traveled and time spent traveling. This payment is the primary source of revenue for Uber, just as it would be for any other taxi company.
However, it's clear that Uber differs from most prior cab companies. Uber does not own its fleet of vehicles; they belong to the individual drivers on the platform. The drivers belong to a huge network that makes it possible for five minutes to be the average wait time to be picked up in 63 countries.
Further, Uber specializes its taxi services, catering to different types of individuals with various offerings.
Uber has worked diligently to avoid generating particular ties with certain types of cars or a certain demographic of customer. Uber X, Uber Black and Uber Pool are all options that customers have when hailing a cab through the app, and these classifications refer to different types of car and varied levels of luxury in the taxi experience, with different price tags attached.
Uber also capitalizes on supply and demand with a concept known as surge pricing. When demand increases in a given area, the algorithm used to estimate rider costs is adjusted as well, with the per mile price increased. The more demand relative to the number of available drivers, the greater the surge in prices.
One other way that Uber is distinct from traditional cab companies is that it has yet to limit the number of cars in its fleet. While local laws stipulate a maximum number of licensed taxis on the road in places like New York City, Uber has so far been free to flood the market. This has perhaps been beneficial for meeting increasing demand, but there is a question as to whether this practice is ideal for supporting Uber's price structure over the long term, according to Forbes.
Uber Eats, Uber Freight and New Mobility
Launched in 2014, Uber's mobile food delivery platform, Uber Eats, leverages the drivers on the company's network to provide meal deliveries within an average time of around 30 minutes. Over 15 million people used Uber Eats in the last quarter of 2018, resulting in gross bookings of $2.6 billion. With Uber Eats, drivers are paid a per-mile rate in addition to a pickup and drop off fee, customers are charged a variety of fees based on their order and restaurants are charged a service fee for the use of the platform.
Uber Freight, the company's foray into the logistics industry, brought in $125 million in revenue for the quarter ended December 31, 2018.
Uber is also investing in dockless e-bikes and e-scooters for short trips in congested urban areas to expand its personal mobility offerings.