In 2023, Uber reached a major milestone, earning more money than it spent in a full year for the first time. This was widely seen as a sign that the perennially struggling company was finally on a more sustainable path.
Today there are signs that the journey may take longer than we thought.
The ride-hailing and delivery company reported a surprise net loss of $654 million for the first quarter of the year, as legal settlements and capital investments proved to be a bigger drag on Uber’s business than many expected.
The ride-hailing and delivery company unexpectedly reported a net loss of $654 million
Wall Street analysts had expected a profit of $474 million The Wall Street Journal. In particular, the company’s never-ending legal disputes over the classification of its drivers as well as declining demand in certain markets were seen as a brake on Uber’s financial momentum.
Still, the core aspects of Uber’s business appear strong. The company’s adjusted profit of $1.4 billion increased 82 percent year-over-year. Uber’s gross bookings, or the value of transactions through its app, rose 20 percent to $37.65 billion. Sales also rose by 15 percent to $10.1 billion.
So why the loss? In short, legal settlements, equity stakes in other companies and fewer trips in key markets like Latin America. All of these factors may seem unrelated to Uber’s business of delivering people and goods – but they also largely reflect the company’s core business model.
It’s no secret that Uber classifies its drivers as independent contractors to reduce labor costs and position itself as just an app that connects customers with enterprising freelancers who work for multiple ride-hailing and delivery companies. And yet the company has been fighting for years against attempts by local lawmakers and courts to reclassify its drivers as employees and pay them better.
Still, the core aspects of Uber’s business appear strong
The company has spent tens of billions of dollars resisting these efforts, and while it occasionally wins, it appears to be no closer to resolving the issue.
The latest twist is taking place in Minneapolis, where local leaders have announced new pay laws for Uber and Lyft drivers, prompting the company to threaten to leave the city if it passes. There are battles for the drivers’ championship in Massachusetts and California.
And when things look particularly dire, Uber calms down – which is why the company’s profitability looks more uncertain than it should. Most recently, Uber agreed to end its battle with Australian taxi drivers by agreeing to pay them $178 million.
Unlike its much smaller rival Lyft, Uber is a global company and argues that its size gives it leverage when it comes to bending local labor regulations to its will. And while there have been successes, it still seems like the fight continues unhindered.
The Biden administration has set its sights on Uber and other gig economy companies. Depending on enforcement, this could increase the company’s financial uncertainty and further thwart its plans for sustainable profits.
People don’t seem to care that Uber is more expensive. But if the company suddenly had to start paying drivers in major markets full benefits and a living wage, that willingness could wane in the face of a much more expensive ride or take-out order.