How Uber Makes Money: food delivery, ride-hailing, and freight

Uber Technologies Inc. (UBER) makes money by running a ride-hailing service, and takes a cut of the fares. The company also has a food order and delivery business, Uber Eats, and a freight shipping business, Uber Freight. These work similarly to ride-hailing, except that they match people with delivery drivers and freight shippers, respectively.

Key Takeaways

Uber matches consumers looking for rides, food delivery, or shipping with people selling those services.
Uber’s delivery service has overtaken its ride-hailing business as the company’s largest source of revenue, but ride-hailing is still the only segment that earns a profit.
Uber recently announced plans to acquire food delivery business Postmates.
Uber continues to face challenges over the classification of its drivers as independent contractors in California.

Uber’s Financials

Uber’s market cap is about $53 billion. Total revenue fell 29.2% year-over-year (YOY) in Q2 2020, which ended June 30, 2020. The company, which has consistently struggled to make a profit, posted a net loss of $1.8 billion for the quarter. However, this was not as bad as the $5.2 billion net loss posted in Q2 2019. Uber’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) across all of its businesses is slightly better, but still registered a loss of $345 million in Q2 2020.

Uber’s Business Segments

Uber has made some changes to the way it classifies its reportable business segments for Q2 2020. The Rides segment has been renamed to Mobility and the Eats segment has been renamed to Delivery. Additionally, Uber sold its JUMP electric bike rental service, which had been categorized under its Other Bets segment. Certain immaterial offerings previously organized under Other Bets have now been moved to the Mobility segment. Uber now has just four operating and reportable segments: 1) Mobility; 2) Delivery; 3) Freight; and 4) ATG and Other Technology Programs. The Other Bets segment was included in the company’s Q2 2020 earnings report for comparison purposes, and we include it below.

Mobility (formerly Rides)

Uber’s Mobility segment is its flagship ride-hailing business. This segment, once Uber’s largest, made up just 35% of Uber’s revenue in Q2 2020, having fallen 66.8% YOY. Uber reports adjusted EBITDA for its reportable segments. Even using this more generous measure of profitability, only Uber’s Mobility segment is profitable. The segment posted adjusted EBITDA of $50 million in Q2 2020, down 90.1% compared to the same quarter a year ago.

Delivery (formerly Eats)

Uber’s Delivery segment offers an app that lets people order meals from restaurants remotely for either pickup or delivery. For delivery, customers are matched with drivers similarly to how they are for Uber’s ride-hailing business. The segment was first launched in 2014 as UberFRESH, before becoming UberEATS in 2015. The segment, which is now officially reported under the name Delivery, generated 54% of Uber’s revenue as of Q2 2020, seeing revenue grow 103.5% YOY.

Freight

Launched in 2017, Uber Freight connects truck drivers to shippers looking to move freight in the same way that its ride-hailing business connects drivers with people looking for a ride. Uber Freight only makes up a small portion of Uber’s total revenue, or about 9% as of Q2 2020. But it is growing, up 26.3% YOY.

Advanced Technologies Group (ATG) and Other Technology Programs

Uber’s ATG is its program to develop self-driving vehicles. The other major part of this segment is Uber Elevate, a program to develop vertical takeoff and landing (VTOL) aircraft ride-hailing. This segment is composed of very early-stage projects, and registered revenue of just $25 million in Q2 2020. There was no reported revenue in Q2 2019 for comparison.

Other Bets

As mentioned above, Other Bets is no longer considered by Uber as one of its operating and reportable segments. However, it is included here for comparison purposes. The segment had included Uber’s JUMP electric bike rental service until that business was sold. The segment also included Transit, UberWorks, and the company’s Incubator group. Other Bets posted revenue of $4 million in Q2 2020, down 85.7% compared to the same quarter a year ago.

Recent Developments

Uber announced in early July that it had reached a definitive agreement to purchase Postmates Inc. for approximately $2.65 billion in an all-stock transaction. Postmates operates a food and grocery delivery service, similar to Uber’s Delivery business but with distinctive geographic focus areas and customer demographics. The move suggests Uber is becoming more serious about its Delivery service, which has overtaken its ride-hailing service in terms of revenue amid the COVID-19 pandemic.

On August 13, 2020, San Francisco Superior Court Judge Ethan Schulman refused to grant Uber more time to appeal an earlier decision requiring the company to classify drivers in the state as employees. California’s new state law — Assembly Bill 5 — makes it more difficult to classify “gig” workers as independent contractors. Currently, Uber classifies its drivers as independent contractors rather than employees, a distinction that allows Uber to avoid paying minimum wages, paid sick and family leave, unemployment insurance, and workers’ compensation insurance. On August 20, 2020, a California appeals court granted Uber and Lyft an extension to comply with the order to reclassify their drivers as employees. They were required to submit plans on how they will comply with the order if their appeal fails and ballot proposition 22, which would exempt their drivers from AB5, fails to pass. Oral arguments for the appeal begin on Oct. 13, 2020.

On Sept. 28, 2020, Uber’s transportation license in London was restored after it had been revoked in November of 2019, the second time it has been revoked in the last three years. London’s transportation regulators cited Uber’s failure to prevent unauthorized drivers from using their app, potentially endangering riders. The current license lasts 18-months and is conditional on Uber provided periodic safety reports.

How Uber Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Uber and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Uber releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Uber discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Uber breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.