The ride-sharing app/company, Uber, went public in May (2019). If you’ve never used the app/service, Uber is essentially a taxi service (1) you hail through an app on your phone; (2) through which anyone can sign up to be a driver, using their own personal vehicle; and (3) that you pay for through your phone app at the end of each trip. Uber takes their cut from that payment and then pays the driver.
After its initial public offering (IPO), Uber mostly made the news for taking a huge hit/loss in the stock market. From that New York Time’s article, Uber lost the most in dollar terms at its initial public offering than any company since 1975.
There are several aspects of Uber that make it particularly odd:
1. The Books. They don’t use generally accepted accounting principles (GAAP) when presenting their financials. (Refer to page 29 of their IPO prospectus.) GAAP makes companies more comparable – 8 apples vs 11 apples. I wonder why Uber uses accounting principles that don’t allow the public to compare them easily to other companies?
2. The Performance. Even using their non-GAAP treatment, they still reported $1.8 billion in 2018. Sorry…that’s $1.8 billion in LOSSES, not profit. (Page 31 of the prospectus.) (See special note below.*)
3. The CEO. Notwithstanding the $1.8B loss, they paid their CEO $45 million in 2018. (Page 240 of the prospectus. )
4. The Workers. They have just over 22 thousand employees (pg. 29), but 3.9 million drivers (Pg. 5). Their actual 40-hour/week employees just constitute less than 1% (0.56%) of their workforce. Put another way, drivers – who have no commitment by the company to ever make any money and can be dropped at any time, without severance – make up over 99% of their workforce.
5. Driver Payment. This requires some math because they don’t come right out and say how much their drivers actually make. They disclose that “gross bookings” were just under $50 billion in 2018 (pg. 5). When you divide that by 3.9 million drivers? That’s just $12,820 per driver. Granted, I think it’s safe to assume drivers generally don’t work 40 hour weeks and mostly use Uber as a side gig, but if they did, that’s just $6.40/hour ($12.80/hour for a 20-hour week).
My thesis: Uber, while paying its top executives insane amounts of money, is completely dependent on a workforce who accepts wages at around the minimum wage. They’re a taxi service that doesn’t pay taxi driver wages.
There are better articles on what drivers actually make. The hyperlinked article concludes it can be around $25/hour in bigger cities, but that’s not for a 40-hour week. Even then – the article pointed this out before I thought about – by not being employees, drivers also then have to shoulder a lot of costs that employees don’t, such as their health insurance and car payments. The article also concludes that with drivers bringing their own vehicle (asset) into the company, Uber has a $4 billion fleet of vehicles it has not paid a dime for.
I stopped using Uber over a year ago. I’d use Lyft if I’m in a pinch, but never more than once a month. It’s convenient. Cheaper than a taxi. But it comes at a cost. And there’s conflict with that. It’s a way for some people to make money (kind of), but I don’t want to feed into that cycle of underpaying my neighbors who drive for Uber so that rich executives can get richer.
(*Special note. My wife asked a good question when she proofed this – why such a big loss ($1.8 billion)? On that same table, they note almost $5 billion in “Other expenses.” Referring to page 95, footnote (f), I read as saying they had to pay over $3 billion in taxes in Russia and Southeast Asia when they sold their operations to buy non-controlling shares in the resulting entity (plus another $40 million to their accountants and lawyers (footnote (e)).)
Taxis are expensive – to me at least. But maybe that cost represents the true value of a taxi ride, where the driver actually gets paid what they deserve.
Pay your people,
The Anxious, Amateur Economist.
The Anxious, Amateur Economist 