Creating True Profitability and

Sustainability within Uber

A Business Proposal

Alexandru Diac

November 12, 2022

Uber as a Business
“Uber is not profitable on any level and is still cashflow negative. EBITDA losses over the past
three years have been $2.5 billion, $2.7 billion, and $1.8 billion.” - NASDAQ Market Analysis

Uber, as a ride sharing service, functions within the stated term of a “gig-economy.” While
tremendously convenient for the users of the app, the long-term profitability of Uber as a
company is currently far out of sight due to issues rooted deep within the business model.
Uber has identified a need within the market, and executed a product that has become highly
established with many users across the globe. Placing Uber drivers under the classification of
independent contractors has helped regulate employment issues within the legal sector;
however, this is far from the company’s biggest problem. Emphasis must be placed on turning
around actual profit before the company dissolves in the hands of poor business decisions.

Uber's Model and Functions

For this, it is important take an aerial view on how Uber functions as a business model. In the
ride-share industry, Uber has already established itself as the leading brand name amongst
leading competitors such as Lyft. This has allowed Uber to expand their name into further
markets, such as food and grocery delivery. Currently, Uber has established itself in two
market segments: ride-sharing and food delivery. This a positive step in establishing monetary
growth; however, the expenditure to revenue ratio is at a level that is concerning with
regards to long term company development. Yet even with this expansion and significant
operation expenses, Uber has yet to come near the point of breaking even. As a platform,
Uber connects drivers to consumers in need of a ride or delivery. With a software that makes
the process straightforward for internet users, Uber collects fees from the bookings within its
platforms. On average, the fee that Uber claims towards their revenue between 20-40% of a
ride fare, while the driver claims rest.

The Problem

There is a rising problem regarding Uber's profitability and long-term sustainability. As of

2022, the company's net profit margin is –2.8%. As recent as the third quarter of 2022, Uber
found record revenue levels, yet still lost around $1.8 Billion from its investment stakes. Even
with Uber's first ever quarter of positive cash flow, the integrity of the business appears to

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swindle. Uber must conduct a method to consistently establish quarterly profit, along with
sustainability against growing external factors. Inflated gas prices have stagnated revenue,
and lowering ride costs to combat competition can only continue for so long before Uber loses
its ability to generate the necessary amount to gain market trust from investors.

Failure in the Business Model

Uber has relied on subsidizing drivers an extreme amount in attempt to cut costs and combat
slow growth. Analyzing a third quarter result from last year, Uber generated $9.7 billion in
revenue. However, between driver payouts, bonuses, discounts, and insurances costs, 90% of
this revenue was absorbed. Most importantly, this is 90% before any money being spent on
research, development, and marketing costs. This alone shows the inefficiency of the business
model, and more importantly the long-term non-sustainability.

Uber boasts its international presence, and great expansionary measures. However, managing
competition has been holding down Uber from the start. With a business model that already
limits net income, Uber opens a satellite office for every incremental expansion. This adds in
another significant expense on top of marketing, research, and development. Increasing
subsidies to battle with competition across international markets only further hits the
company, and utilizing investment towards lost matters - such as developing their own self-
driving car – is making waste of Uber's growing popularity and brand name.

Necessary Next Steps

It is key to note that it is not too late for Uber to turn around their current projection. With a
change in the approach to their business model, Uber can find a steady rise in profit. A better

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understanding of the current market, both domestically and internationally will show the
direction Uber needs to follow. Currently in the ride-share industry, Uber has a significant
edge in consumer preference over their direct competitors in Lyft.

What this shows, is that Uber clearly generates a better service experience than Lyft, yet
business processes lead to their EBITDA being lower than the competitors. Having this edge in
competition takes Uber into the first necessary step forward.

Eliminating Subsidies
As seen through yearly documentation, Uber is much more established than its direct
competitors. By playing a game of subsidies with Lyft, Uber is only allowing Lyft to catch up
in net revenue. Instead, Uber should seek to reduce subsidies significantly, if not eliminate
them all together. As Uber is the better-known company with the larger market share, this
will be much easier for Uber to do rather than Lyft. This will allow Uber to receive greater
earnings, and implement them in better marketing strategies, and research costs to better
understand where Uber can continue to create an edge on maintaining consumer preference.
In Uber's early years, venture capitalists invested $23 billion in the company. Having this
market backing provides relief from having to drive company value through subsidies.

Managing Expansion
As Uber expands, it should eliminate or reduce nation-wide local offices. In a post-pandemic
world, these local offices have been proven to be no longer needed. Instead, Uber should just
establish centrally located customer-service operations and headquarters in each of their
desired nations, as opposed to satellite offices with each individual city expansion. This will

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help reduce operating costs for Uber. On the same idea, Uber needs to better understand its
place amongst nations of use. Currently, Uber should pull out of India, as it is in a significant
price war with competing company "Ola", in which Uber is years from breaking even.
Similarly, countries like Egypt in which Uber is prominent, may place regulatory hurdles that
make it exceedingly difficult for Uber to maintain its place against taxi systems. Instead, Uber
should focus on its establishment in the North American regions, before branching out globally
without a sustainable business model.

Adjusting Reinvestment & Business Identity

Having survived the effects of the covid-19 pandemic, Uber now has more drivers than ever.
More importantly, still more drivers than their direct opponents. This allows Uber to keep
operating costs low, without having to manipulate prices all that much to persuade consumers
and drivers to join the brand. Instead, Uber most focus their direction on machine learning
and artificial intelligence. Currently, Uber's model serves as a slightly progressed taxi service.
By being able to develop greater driver efficiency and dispatch, Uber will become more
convenient for both the user and the driver. This will drive an increase in the rate of loyal
customers, in turn developing Uber's net revenue. Aspects such as optimal drop-off and pick-
up points, and fraud detection, will all contribute to greater customer trust and further allow
Uber to control and even greater share of the market.

Looking into the Future

Growing technology will only help Uber create and edge on this industry. Dropping the
development of their own fully autonomous vehicle for a partnership with an automotive
company will give Uber greater connection across industries relying on transportation. As this
occurs, Uber most follow regards for regulations to maintain consumer trust. Vehicle markers
and branding will grow public attention towards the company, and filtering quality drivers
will provide for the best user experience. As Uber approaches their significance in the
industry, nearing a monopolistic approach on the market segment in the United States, Uber
will be able to control prices in ways necessary to their producing profitability. Proper
expansionary measures will then have to follow suit with an approved level of regulations
regarding safety and other aspects that will allow Uber to assert a true global standing. This,
however, is only to be considered once its business model becomes perfected in the US.

Conclusion

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Uber does not have to be a doomed business. Having been grown out of a business model that
was not yet perfected locally, Uber has suffered in regards to generating a profit margin since
its birth. While being victim to yearly net losses, Uber has still managed to develop a trusted
brand name. In the ride-share industry many people claim, "Let's take an Uber," not "Let's find
a ride-share." Uber must use its growing platform and name to turn around and revise
business flaws of the past. In the current state of Uber, subsidies should be reduced to
maximize revenue from direct ride commissions. Technological advancement in their software
utilizing artificial intelligence to further enhance the user experience will only help solidify
Uber's place with consumers. A one-time use can create a loyal customer through these
means. Global expansion must be monitored with regards to the transportation regulations of
individual countries, along with local competition. Furthermore, managing centrally located
offices will be more cost efficient than local satellite offices. Uber is now in a place where it
must take on a call for action with regards to the future. Understanding the future landscape,
taking on partnership, and establishing internal regulations will concrete the integrity of the
company and create repeated periods of potential profit.

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