We’ve all, at a certain point in our lives, booked a ride through the Uber app. Or maybe, you became best friends with your Uber Eats driver during the pandemic!
Uber is one of the most intriguing companies to come out of the decade, with unpredictable growth and controversy that remains a constant. They disrupted modern transportation and was at one point, the highest valued private startup company worldwide.
But after reporting a loss in revenue in 2020 due to the coronavirus pandemic and controversies surrounding its past CEO, can they see a positive future?
An Overview of Uber Technologies, Inc
Uber Technologies Inc, widely known as Uber, is an American technology company based in San Francisco, California, operating in over 900 areas globally. One of the largest companies in the gig economy, their services include:
- Ride-hailing
- Food delivery
- Couriers
- Package delivery
- Freight transportation
- Motorized scooter and electric bicycle rental through Lime
Uber has approximately 93 million active users worldwide, with a 22% market share for food delivery and a 71% market share for ride-sharing in the United States.
Uber went public on May 9, 2019, a decade after they were founded.
Uber has faced several controversies, including disrupting taxicab businesses, treating drivers as independent contractors, and increasing traffic congestion. Under CEO Travis Kalanick, they got criticized for ignoring local regulations and their unethical practices.
The History of Uber
In Paris in 2008, two friends, Garrett Camp and Travis Kalanick were attending an annual tech conference when the concept of Uber was born. They were unable to get a cab and so came up with the concept of requesting a ride from your phone.
The idea first started for a timeshare limo service that could get ordered via an app. After the conference, the two went their separate ways, and Camp bought the domain name UberCab.com.
UberCab
Camp began working on the idea in 2009, and with Kalanick joining him, they tested the service in early 2010 in New York with only three cars. Kalanick became CEO in 2010.
The app became popular due to its simplicity. A ride could get ordered at the tap of a button, with a GPS used to identify the location. Whatever cost needed to get paid would get charged immediately on the card on the user’s account.
Two years later, in 2011, they launched in Paris as their first international venture.
Uber’s Funding
Uber received their first major funding in late 2010 worth $1.25 million. In early 2011, they raised $11 million worth of funding and expanded their services across the United States and Paris.
In late 2011, Uber raised $37 million, and by 2012 were able to launch UberX, an inexpensive hybrid car used instead of black car service.
Becoming the most valuable startup worldwide in July 2015, it got valued at $51 billion after its first funding rounds.
Multiple controversies dropped Uber’s valuation from $70 billion to $48 billion during their funding round in early 2018.
Uber reported a global loss in 2016, but with UberPool, a carpooling service, their revenue quickly grew, and they were able to report a revenue increase of 76% for the fourth quarter of 2016.
Uber IPO
Uber’s initial public offering (IPO) is historically in the United States the most significant first-day dollar loss in IPO history. They went public with a stock price of $45.
Uber was previously valued at $120 billion by Wall Street analysts, but after its IPO, they were only valued at about $69 billion, which is half of the IPO they’d hoped for.
The company struggled to profit in 2020 due to the coronavirus pandemic, mainly because of a decline in rides during this time.
As of January 8, 2021. Uber’s market capitalization was $98.74 billion.
Uber’s Business Units and Service Offerings
Fees and terms get determined by Uber on which drivers transport riders. They take a 25% share from each fare and use a dynamic pricing model. Depending on the local supply and demand at the time of service, fares will fluctuate. Customers get a quote of the fare in advance.
Services get accessed via Uber’s mobile app. Users need to create a profile with their personal information and payment preference.
To qualify as an Uber driver, the following information gets considered:
- A driver needs to provide their own vehicle, which can be owned, leased, or rented.
- Age
- Car type and age
- Health
- Must have a valid driver’s license
- Must have a smartphone or tablet
- Drivers may be required to pass a background check
In several cities, drivers must pass an annual safety inspection and post an emblem on the passenger window. A business license is also required in some cities.
After each transaction, customers and drivers can rate each other. Users with low ratings can get deactivated.
Service Options
The basic service level is UberX, a private ride that caters to four people with a driver. UberPool is a service that allows drivers to pick up multiple riders on one scheduled ride, making it cheaper than UberX and UberBlack.
There are several other services available, with the following notable ones:
- Uber Eats is a food delivery service.
- Lime: In collaboration with Alphabet Inc’s Google Ventures, Uber invested in Lime, an electric scooter company. The scooters are lightweight and available in cities for rent. Customers leave the scooters on the sidewalk for the next rider, making it a clean energy-based business model that’s also convenient.
- Postmates: Uber bought Postmates in an all-stock deal for $2.65 billion. The deal was strategic, as it helped offset losses from the ride-sharing part of the business, which struggled during the pandemic. Uber’s stock was at an all-time high after acquiring them.
- Uber self-driving cars: Uber hoped to be a competitor for Tesla Motors and other driverless vehicles, but Waymo from Alphabet’s Inc sued Uber in 2018 for stealing their self-driving technology. Uber suspended all testing in early 2018 when a pedestrian got fatally struck by a self-driving car. In mid-2018, Uber’s self-driving cars made a comeback. In December 2020, Uber announced it would be selling its autonomous vehicle business to Aurora Innovations.
Sexual Allegations and the Resignation of CEO Travis Kalanick
In February 2007, a former Uber engineer came forward with allegations with then CEO Travis Kalanick, stating a manager sexually harassed her. Another manager threatened to terminate her employment if she continued to report the incident. Allegedly, Kalanick knew of the complaint.
Over the following months, more allegations were made, including against Kalanick for sexist attitudes. He also got caught on camera arguing with an Uber driver about lowering his fares. The incident further tarnished his image.
Former attorney general Eric Holder and Arianna Huffington, a member of Uber’s board, were hired by Uber to investigate the claims. Over 20 employees got fired due to the investigation results, with Kalanick taking a leave of absence. A week later, Kalanick resigned as CEO after getting pressure from investors. He consequently resigned from the board of directors in 2019 and sold his shares.
Not long after, Uber announced they’d hired Dara Khosrowshahi to take over as CEO.
The Departure of Emil Michael
In 2014 at a private dinner, senior vice president Emil Michael suggested that a team of opposition journalists and researchers get hired by Uber to dig up dirt of media figures reportedly negative about Uber. He specifically wanted to target an editor of PandoDaily, Sarah Lacy, who accused Uber in an article she wrote of misogyny and sexism in its advertising.
After apologizing to her and more controversies arose, Michael left Uber around the same time Kalanick resigned.
Claim Settlements
In August 2018, Uber agreed to pay 480 workers a total of $7 million to settle claims of harassment, gender discrimination, and hostile work environment.
Further Controversies Surrounding Uber
Price Fixing Allegations and Dynamic Pricing
Dynamic pricing is when prices are not the same for the same route as it gets based on supply and demand for the rides in a particular area and a specific time when a ride is requested. When a certain area has high demand and lacks drivers in this area, there is an increase in fares to attract more drivers to that specific area.
This model has resulted in excessive surcharges, especially during emergencies such as the 207 London Bridge attack and Hurricane Sandy.
Drivers have no control over fare charges in the United States. Uber has allegedly violated the ban on restraints of trade in the Sherman Antitrust Act of 1980. The trial is still ongoing and is yet to be resolved.
The Alleged Short-Changing of Drivers
A class-action lawsuit got filed in 2017 on behalf of thousands of Uber drivers who alleged that Uber’s upfront prices policy didn’t give drivers the promised 80% of fares.
Following the New York Taxi Workers Alliance (NYTWA) filing a class-action lawsuit in May 2017, Uber went ahead and admitted to underpaying New York City drivers millions of dollars over 2.5 years. Uber then agreed to pay the amounts back, including interest.
Fair Pay and Driver Benefits
In New York, as opposed to after-tax earnings, Uber had incorrectly charged drivers commission based on pre-tax earnings. Uber declared this to be an accounting error and dedicated to paying its drivers back in full quickly.
The issue of fairness is questioned, as who would be responsible for paying the taxes? The New York Times found evidence that Uber is avoiding tax at the expense of its drivers. They estimated that drivers could have costs of hundreds of millions of dollars.
Earnings: Male vs. Female Drivers
According to data analysis, it was discovered that women drivers earn about 7% less than male drivers. It got found that men drove on average 2.5% faster, allowing them to serve more customers. Male passengers gave 5% tips, whereas female passengers tipped on average 4%. Female drivers received more tips, but only if they were under 65 years old.
Competition Between Uber and Lyft
Competition between Uber and Lyft is fierce! In 2014, both companies claimed that employees and drivers often hailed and canceled rides on each other’s services to sabotage the other company. Kalanick revealed in an article that he had tried to undermine Lyft’s fundraising efforts.
Uber’s Current CEO, Dara Khosrowshahi
Uber’s current CEO, Dara Khosrowshahi, was previously the Expedia Group’s CEO, the world’s largest online travel company. He currently serves as a member of the board of directors of Hotels.com and BET.com and is previously a board member for The New York Times Company.
Khosrowshahi became CEO of Uber in 2017 after Kalanick resigned. He knew when he took over that he would need to fix the mess that Kalanick had left. In the months leading up to Khosrowshahi’s appointment, more than 200,000 upset passengers started a #DeleteUber movement.
When Khosrowshahi started, he talked to drivers, female engineers, and staff who worked in customer support. He earned a reputation as a diplomatic leader and reshaped the company’s toxic business culture.
Khosrowshahi’s leadership style is opposite to that of Kalanick, as they both have different approaches.
During the first six months under Khosrowshahi’s leadership, Uber lost many employees as they didn’t want any association with its scandals. Some left as they felt managers were mistreating them.
Since then, Khosrowshahi has been working tirelessly to get employees and the public to believe in Uber again. He has had many people backing him as the new CEO, with Expedia CEO Mark Okerstrom stating that Uber is fortunate to have him and will make an exceptional leader.
Uber’s Lack of Diversity
At the end of 2020, Uber released their diversity report, which stated a decline in overall Black representation due to layoffs resulting from the pandemic.
In early 2020, they cut about 25% of its workforce, which resulted in approximately 6,700 employees losing their jobs. The layoffs decreased Black representation, declining by 1.8%. Black representation now makes up 7.5% of Uber’s workforce, where in 2019, it was 9.3%. However, Uber did try to alleviate bias when downsizing by getting assistance from an external counsel.
In its diversity report, Uber has made progress with women and people from underrepresented racial groups increasing in leadership roles. Women’s leadership rose to 32.4%, while Black leadership rose to 4.21%. Uber has previously announced they are looking to improve Black leadership representation by 2025. There has also been an increase in Hispanic/Latinx leadership, having risen to 3.8%.
In Uber’s 2017 diversity report, women accounted for 36% of its global workforce, and in 2020, they made up 40.3%.
Uber stated they would continue to focus on increasing women in leadership roles and improve the overall representation of Hispanic/Latinx and Black employees.
Financial Highlights for 2020
In February 2021, Uber announced its financial results for the entire year ended December 31, 2020, and results for the fourth quarter. The following is a look at a few of the financial highlights for the fourth quarter of 2020.
- Revenue declined 16% year-over-year (YoY) and grew 13% quarter-over-quarter (QoQ).
- In quarter four (Q4), mobility got recorded with more than 1 billion trips.
- Gross Bookings saw growth of 16% QoQ to $17.2 billion and declined 5% YoY.
- Mobility Adjusted EBITDA was up $48 million QoQ and declined $449 million YoY.
- Mobility Revenue declined 52%YoY and grew 8% QoQ.
Uber’s delivery business more than doubled over the year.
Here is a look at some of the operating highlights from the fourth quarter of 2020.
Platform:
- Membership programs are available in 16 countries, with the membership programs reaching 5 million members. These programs include Postmates, Uber Pass, and Eats Pass.
- Over $22 billion got paid out to drivers and delivery people.
- Mobility trips exceeded 1 billion, while trips grew 22% QoQ to 1.44 billion.
Mobility:
- Mobility Gross Bookings recovered 15% in Q4 and were down 50% YoY.
- Hailable products’ Gross Bookings grew with over 50% QoQ.
- Revenue is up 8% QoQ and down 52% YoY.
- Uber Green, Uber’s EV and hybrid ride option, expanded to more than 1,400 cities.
Delivery:
- Delivery Gross Bookings grew 128% YoY and 18% QoQ.
- More than 600,000 restaurants are active on the platform, with Uber Eats partnered restaurants growing by over 75% YoY.
- The Postmates acquisition got finalized on December 1, 2020.
Other segments and corporate:
- Freight saw an increase of 45% in customers, doubling their growth QoQ.
- Uber completed a $1.15 billion convertible notes offering.
Recent developments:
- Uber has agreed to acquire Drizly, the leading online alcohol marketplace in the US, for about $1.1 billion in cash and stock.
- Uber sold about $207 million of its Didi shares. They have agreed to sell another $293 million shares in Q1 2021.
Uber (NYSE: UBER)
Uber stock is trading at $43.81 at market close May 12, 2021. The company debuted on May 10, 2019, and became one of the most-watched IPO stocks today.
Uber had earnings of 59 cents per share in 2018 but lost $5.04 a share in 2019. In 2020, they lost $3.86 a share and expected $1.09 a share in 2021. In May, Uber released their first-quarter results for 2021 and reported an adjusted loss of 6 cents a share on a $2.9 billion revenue.
Uber stock does not pay out dividends, making them less desirable for income-minded investors.
Uber: Where They are Now and What to Look Forward to
Assistance with Vaccine Rollout
American president Joe Biden recently raised concerns about the national minimum wage and wants to make it easier for workers to unionize and is considering raising it to $15. He also opposed Proposition 22, a California ballot measure allowing gig platforms like Uber to resume treating their workers as independent contractors.
Even though he opposes Proposition 22, Biden announced a deal he made with Uber and Lyft to transport Americans to vaccination sites. The program starts on May 24, 2021, where users can get nearby vaccination sites on the ride-share apps and cover $15 rides in either direction.
Transition to Electric Vehicles (EVs)
California Air Resources Board (CARB) has proposed rules to mandate EVs account for 90% of ride-hailing vehicle miles traveled by 2030. The proposed rules are expected to pass in May 2021. Both Uber and Lyft call these regulations unrealistic, as they have committed to getting their US fleets converted to EVs by 2030.
Both companies have obstacles to overcome to convert their fleets, as their drivers all own their cars and work when they want to. Full-time drivers don’t make enough money to rationalize the high costs of EVs, and most buy used vehicles and possibly have bad credit.
Uber has committed to invest $800 million through 2025 globally to assist drivers in switching to EVs. But that’s not enough to convert nearly five million drivers as of February 2020.
Cannabis Deliveries
CEO Khosrowshahi recently announced that once federal regulation allows them to, Uber will start delivering cannabis. Cannabis is still illegal under federal law. However, the federal government has permitted states to legalize the drug over the past few years. So far, 17 states have already legalized cannabis for recreational use.
The latest state to legalize the recreational use of marijuana is in New York, where the law allows for the delivery of marijuana products.
Khosrowshahi stated that although they are interested in adding cannabis delivery in the future, they will continue to focus on their current opportunities. On Monday, May 10, 2021, Uber’s stock rose by more than 2% after posting March’s record gross bookings, indicating how they are increasing demand.
Final Thoughts
Uber is followed closely worldwide while historically being the most valuable startup in the world. Even though COVID-19 has disrupted its plans to become profitable, their strategic investment in Uber Eats and their California Proposition 22 win is a sign of good things to come for the company.
All eyes continue to stay on CEO Dara Khosrowshahi as he tries to move the company into a positive light. It’s a good start if Uber can avoid further controversies and improve its diversity.