The ride-hailing service could start making a profit sooner than anticipated, with 2020 dubbed the year of subscriptions by Uber’s CEO.
Uber (NYSE: UBER) has made quite the name for itself and replaced traditional taxi services for many people. However, a huge overhaul of its business model and company plan is needed if it wants to post a profit. At its recent fourth-quarter earnings call, Uber lost $1.1 billion, which is a jump from the $887 million loss it reported at the same time last year. Overall, it lost a huge $8.5 billion for the whole of 2019. As the coronavirus pandemic continues to eat into the company’s revenue and with an earnings call coming up on May 7, here are 3 ways for Uber to become sustainable.
1. Uber needs to raise its prices
The quickest way the company is going to get out of the red would be to raise its prices for fares or cut driver pay. Uber has been up against some tough competition in the past few years, which has, in turn, created a race-to-zero situation as it attempts to outprice rivals such as Lyft. This is something that needs to change if the company wants to get ahead in the race. By raising its prices, there would be an increase in what is known as “take rate” or the cut of each fare that the company pockets.
Another way it can increase its fare price would be to stop offering incentive packages for drivers and coupons for its customers. There was a bit of positive news from the recent earnings call – the company reported losses that were smaller than what analysts had estimated, $0.64 instead of $0.68. In addition, revenue grew 37% to $4.07 billion. Uber also brought forward its profitability timeline for earnings before interest, depreciation, taxes, and amortization from 2021 to the fourth quarter of this year.
2. Data monetization
Uber already collects a vast amount of data on its user and drivers movements, and more recently on its customers, Uber Eats orders. One feature dubbed “God View,” where employees were able to see the movements of passengers without their consent ended in a Federal Trade Commission violation settlement. On another platform referred to as “Hell,” the company was able to track the movements of its drivers who also worked for competitor Lyft (NASDAQ: LYFT), Uber would then use fake accounts by the competitor to cancel and accept rides, in the hope of gaining greater loyalty.
Going forward, Uber CEO Dara Khosrowshahi has pledged to do the right thing. There are far more appropriate and legitimate ways the ride-sharing company could use its insights, such as selling data on user travel patterns. In 2019, U.S. companies spent around $26.5 billion on location-targeting advertising. This is a huge amount of money and a way for the company to increase its income. However, only time will tell if Uber decides to risk further reputational harm by using its access to data in inappropriate ways.
Uber is actively testing a subscription model that combines Rides, Eats, Bikes, and Scooters. The monthly subscription is worth $24.99 and offers a fixed discount on every ride, free Uber Eats delivery and free JUMP (bikes and scooters) rides. At the fourth-quarter earnings call CEO Khosrowshahi said that 2020 is the year of subscriptions at Uber, with the model encouraging increased usage.
The business is testing the subscription service in a few different iterations in Chicago and San Francisco, and if the results are promising then it could be rolled out across all of Uber’s locations. This model would lead to a monthly lock-in of earnings for Uber and with the company aspiring to be a one-stop-shop for transportation and delivery it is a good place to start. It can also lay the groundwork for a future driverless taxi service, which Uber eventually wants to unveil.
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Written by Alsha Coppolina