How Uber Beat the Skeptics and Became Profitable

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How Uber Beat the Skeptics and Became Profitable

By Natalie Lung | Bloomberg Businessweek | February 16, 2024

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Uber reported its first annual profit on Feb. 7. It was a milestone for the San Francisco-based ride-hailing and food delivery company, which was once infamous for hemorrhaging cash as it sought growth at all costs. Not only is Uber now solidly in the black, but it also was recently admitted into the S&P 500, and on Feb. 14 its board authorized a plan to return as much as $7 billion to shareholders.  In other words, the former poster child for Silicon Valley disruption appears to be all grown up. Here’s a look back at the distinct eras in the company’s bumpy path to profitability.

Uber Technologies Inc. was founded in 2009 and rose to prominence in an era in which low interest rates kept the venture capital flowing freely. Under the brash leadership style of co-founder and then-Chief Executive Officer Travis Kalanick, it spent heavily to entice black-car drivers and customers to match up on its on-demand car service app. This made for-hire car service much more accessible and came with the novelty of pressing a button on a phone and having a private ride available in a matter of minutes.

To create enough volume, the company guaranteed drivers $500 for the first 10 trips and offered $20 in free rides to customers who referred their friends, says Emil Michael, chief business officer at the time. “It cost a lot of money,” he says. “Those of us in the market were not even trying to be profitable. We were trying to gain market share and create a habit where riders could reliably get a ride in 10 minutes or less in any city.”  Uber also played a cat-and-mouse game with municipal regulators, dodging local laws that regulated taxicabs.

Uber didn’t mind that this aggressive approach made it enemies as long as it also helped secure strong growth and market position. The company drew riders away not only from taxis but also from public transit. By 2016, seven years after its founding, the company was valued at $69 billion, with 45 million monthly active users. Lyft Inc., its most direct rival, had 6.6 million users four years after its inception.

In addition to its core business, Uber started an ambitious autonomous driving operation and bought its way into the bike- and scooter-sharing market. The combination of several money-losing businesses wasn’t a formula for near-term profitability. By 2018 it had accumulated $7.87 billion in losses.

It was the change of leadership and senior management that enabled Uber to built out the controls and processes needed to operate a public company, Uber was able to raise $8.1 billion for its eventual debut on the New York Stock Exchange in 2019.  Still, investors were skeptical about the growth trajectory of the company and the broader ride-hailing industry. Uber fell 7.6% on its first day trading on the exchange, making it one of the worst US initial public offering debuts in a decade amid a tumultuous time in public markets.

Covid-19 turned out to be a critical moment for Uber.  It offloaded the loss-making bikes and scooters business it had bought in 2018 and wound down its autonomous vehicle division, which had stopped testing vehicles after one struck and killed a woman in Arizona. It departed some overseas markets and let go of 20% of its workforce.  Uber also invested heavily in the food and grocery delivery business, allowing it to capitalize on pandemic-induced lockdowns. These deals in new markets meant that Uber continued to accumulate losses before it was able to grow the delivery segment into a profitable one. But in a sign of discipline around mounting costs, Uber later cut jobs at the acquired companies and folded their brands into its primary app.

Uber also spent on discounts and incentives to lure users and drivers back to the platform as the pandemic eased. By 2022 it had lost more than $30 billion. Still, investors were drawn to the potential benefits of Uber’s scale. The company managed to gain more users and drivers than ever, and began to spend less to attract new users than it had in its early days of subsidizing rides and offering steep discounts. Uber also indirectly benefits from higher interest rates, which have cut down on competition by making it harder for potential rivals to find investment.

3 key takeaways from the article

1. Uber reported its first annual profit on Feb. 7. It was a milestone for the San Francisco-based ride-hailing and food delivery company, which was once infamous for hemorrhaging cash as it sought growth at all costs.  
2. Uber Technologies Inc. was founded in 2009 and rose to prominence in an era in which low interest rates kept the venture capital flowing freely.   The company exclusively focused on to gain market share by burning cash fiercely.
3. It was the change of leadership and senior management that enabled Uber to built out the controls and processes needed to operate a public company. Offloaded the loss-making bikes and scooters business it had bought in 2018 and wound down its autonomous vehicle division. Departed some overseas markets and let go of 20% of its workforce. Invested heavily in the food and grocery delivery business, allowing it to capitalize on pandemic-induced lockdowns. Continued to accumulate losses before it was able to grow enough to be profitable.

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Topics:  Strategy, Business Model, Growth, Performance