Over the past few months some insiders have been leaking financial information about Uber. Enough information was finally gleaned that conclusions have been drawn. I’m going to copy-paste information from a summary I read:
- Uber’s third quarter net revenue totaled $1.7 billion.
- That figure is up 240 percent from the year-ago period.
- Uber lost $800 million in the third quarter, before various GAAP expenses.
- The firm’s gross revenue grew 8 percent to $5.4 billion in the third quarter, impacted by the company’s “China exit.”
- Uber’s home market losses are “more” than the prior $100 million rate reported for its second quarter.
- UberEats could do $100 million in net revenue next year. It will lose more than $100 million in the same period.
- The supercorn has “more than $7 billion still sitting in the bank, plus another $2 billion from a credit line.”
Notice that gem about UberEats?
I’m still working through what that means. Uber already wears the crown as the industry’s most expensive online ordering provider per the table below. That’s in addition to separate delivery fees for consumers, mind you.
|Amazon Prime Now||27.50%|
|ChowNow||$499 + $99/mo|
|Food Fetch||$150 + $60/mo|
|Zuppler||$89/mo or 9%|
It could be that Uber is pursuing very aggressive growth. But it would be more troubling if that wasn’t the case.
Uber operates the world’s largest on-demand transportation service. In theory, this would give them the greatest economies of scale, allowing them to offer the lowest transportation prices in the space.Unless the average order is $50, we can't see how UberEats does anything but lose money. Click To Tweet
Here’s that math again from an earlier post:
Go to TaxiFareFinder to estimate how much it would cost to have a taxi deliver food to you. I took a screenshot of the estimated fare for some pizza to be delivered to a Houston resident 3.5 miles from the pizza shop.
Now we have to think about margin. The best report I’ve ever seen was a five-year compilation of taxi costs published by the city of San Francisco in 2005. For those taxi operating companies that were profitable, the average margin was 20%; 36% of the operators were unprofitable. If an average transport service charged $15 for delivery, it really wouldn’t be making that much.
Using the fare calculator above, if I want my $15 pizza delivered, delivery just doubled the price! Since I’ve been conditioned to pay true cost for these kinds of items, for $30 I’m making an entirely different purchase decision. Just forget about sub-$15 purchases: the notion that I’ll spend $5 on a hamburger and shell out THREE TIMES the meal’s intrinsic value to have it delivered is ludicrous.
At an average order price of $50, UberEats’ 30% fee comes to $15, or the average real cost of delivery assuming the distance is something around 3.5 miles per the taxi example above.
If the distance is further than 3.5 miles – which is undoubtedly the case for ~50% of orders – or if the average check is smaller – which is likely the case for ~95% of orders – UberEats loses it’s lunch.
If merchants do this math they might realize that delivery is a pricey proposition and a trend not yet worth following. Let Uber – who has a balance sheet of $7B – figure out the economics for online ordering. If they can’t make the math work, the rest of them won’t either.