Uber is a sprawling company with a lot of moving pieces. In addition to the core ridesharing and mobility business, Uber also has a food delivery segment and a freight platform. The company was able to book nearly $1 billion in profit last year, but only due to a gain on a divestiture after generating an operating loss of over $3 billion.
In this segment from Industry Focus: Tech, host Dylan Lewis and Fool.com contributor Evan Niu discuss the ridesharing giant.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on May 3, 2019.
Dylan Lewis: We have talked about Lyft (NASDAQ:LYFT) a little bit on the show before, so I don't know that the ridesharing industry needs a ton of introduction for our listeners. Uber was the first company to step up in this space. They are the dominant player. They're a little different than Lyft in some ways, though. They operate internationally. They're not just in North America like Lyft is. And they have a couple of different business segments. It's not just ride-hailing and ridesharing and some of these mobility concepts that Lyft has.
Evan Niu: Right. They're much bigger than Lyft. Lyft's in two countries. They're just in North America, in the U.S. and Canada. Uber's in like 63 countries. They have five times as many total users, which makes sense, given how many more countries they operate in. But yeah, like you mentioned, they also have Uber Eats, which is meal delivery; they have Uber Freight, which is a platform to connect shippers and carriers. It's not the autonomous truck driving stuff that they were exploring very controversially a couple of years ago. So, yeah, this is a really sprawling company. They've also imagined flying cars, they're trying to develop autonomous cars. They're still looking at autonomous trucks. They had this setback last year when they had a fatal accident involving one of their autonomous cars, but they're still pushing forward there. They have their hands in a lot of stuff.
Lewis: Despite the fact that they're a little bit more diversified than Lyft maybe when it comes to business operations, really, mobility is still the name of the game for them, personal mobility, and that's the ridesharing/ride-hailing business. I think that all told made up just over $9 billion in revenue, or 82% of revenue for 2018. I think the total pie was about $11.2 billion. So that's where most of the money's coming from. Uber Eats is surprisingly large, $1.5 billion in 2018, roughly 13% of revenue. Freight is a very quickly growing part of their business, but only $370 million in 2018. I think they're doing like 400% year-over-year growth over there, but it's on a pretty small denominator.
Niu: Right, exactly. I was also surprised at how large Uber Eats is, but it also ties back into just the sheer size of their global footprint and how many countries in which they operate. For example, if you compare it to a pure play like Grubhub, who's obviously a big player in local food delivery in the U.S., Uber Eats actually has more restaurants on their platform than Grubhub. But, again, I think that's mostly a function of just the number of countries where they operate.
Lewis: Yeah. The pitch that they are really trying to get across to investors, it seems, is, we are the everything for mobility and delivery and transportation, kind of an "Amazon of transportation" type pitch. Uber Eats plays into that a little bit. In the S-1, I noticed, I think 15% of people that are active consumers on the ride-hailing business have used Uber Eats in the most recent quarter, Q4, that was finished. So the idea is, we build out this massive network of people that use us for ride-hailing; as we add on all this other stuff, they come to us for that, too.
Niu: Right, absolutely. That actually comes back to how they define one of their active users, which is, either you take a ride in one of their cars and/or you get a meal delivered. If you were to just use one or the other -- obviously, they want you to do both -- but, to your point, they're trying to build one platform that does a bunch of stuff and anyone that's using any of these services is considered an active user.
Lewis: If you're taking a quick look at this business, it might look like Uber is profitable when Lyft is not. That is really the case because of some nonoperating reasons, though. The company did post $1 billion in net income in 2018, but they posted a $3 billion operating loss during that period. Most of, if not all of, that profitability was due to divestitures and unrealized gains on investments. The core business here is still not profitable. The company managed to post a profit last year, but don't expect that going forward.
Niu: Right. I think it boils back down to this idea that the underlying unit economics around these rides is just not very good, arguably not sustainable in my mind, but we'll see how that plays out. But kind of like when we talked about Lyft, for the core business of facilitating these rides, the numbers just do not look good.
Lewis: And that's because you have two insanely competitive companies that are trying to build up their base of both drivers and riders. They're trying to incentivize drivers to be a part of the platform. They're trying to incentivize riders to use it. That means very high marketing spend. That shows up a couple of different ways for those companies, but it's just going to eat into the profitability, no matter how you account for it.
Niu: Right. They have to compete on price because it's a commodity. A lot of the drivers, too -- it's very common knowledge that most drivers are on both platforms. They're competing at the same time for both the drivers and the riders and whoever can offer the best financials.