Ling Money on Eveli Delivery.
Photo: Jakub porzycki/Nurphoto Via Getty Images
In the Quarter that ended on june 30, Uber Saw Wildly Different Tracks for Its Two Main Businesses, Due to Covid-19. GROSS Bookings in the Company’s People-Transportation Business Fell 73 Percent as People Went Out and Were Increasingly Afraid to Get in Cars with they did go out. But it goods-transtation Business GREW 113 Percent, As People Went Out Less and ORDED FOOD FOR DELIVERY TO THEIR HOMES.
“It ‘Its Become Clear That We Have a Hugely Valuable Hedge Across Our Two Core Segments,” Said Uber Ceo Dara KhosroWHAHi on the Company’s Earnings Call, notting that as Pandemic Conditions Improve, He Expects People to Be More InClined to Ride in Ubres and Ride in ubres and Ride in uber That where they do not improve, he expake delivery demand to Remain Strong.
But there is one factor that undermines the value of this hedge. Uber Loses Money on Delivery, and so the rapid grown in this business has not generated the thing companies are supposed to generate: profits.
“Cumulative Payments to Drivers for Delivery Deliverias (sic) historically have exceeded the cumulative delivery fees paid by consumers,“ uber noted in its earnings release. This has haen an an ongoing problem in the food-day industry: Huge grower in consumer demand haen achieved by charging customers less for delivery than drivers, who are not exactly highly paid, get paid to provide it. That’s no way to make Money in the Long Run.
Uber would not that is is now ling less money on delivery than it used to. The Company Attributes A $ 232 Million Loss to Its Delivery Segment in the past Quarter, Compared to a $ 286 million LOSS IN THE SAME QUARTER LAST YEAR; So at least this is not a situation where doing more business just leads to Bigger Losses; The Company’s Profit Margin on Delivery Has Improved, Such that is Ling Less Money for Every Dollar of Delivery Services it sells. That’s good.
But there are key quests about the company can eventually get that less-negative profit margin on delivery to turning. First of all, Uber’s Calculations of Earnings by Segment Exclude General Corporate Expens, Like Finance, Accounting, Human Resources, and – Especilly Important for A Company Like Uber – Information Technology. SO NOT ONLY DOES The Company Need to Get to A Point Where the Delivery Business is Showing a segment profit, it needs to a point where it is big enough to offset general Costs.
The Second Question is whereer the pandemic has shoved customers and restaurants to be in a Way that that will expand the delivery business permanently, or where the strange provides the optimal conditions uch a delivery-service provider should be shatt profitable. The Pandemic DOESN’T JUST INCREASE CONSUMER INTEREST IN HAVING FOOD DELIVERED; IT SHOULD PRESUMABLY INCREASE CONSUMERS ‘WILLINGNESS TO PAY TO HAVE FOOD DELIVERED. People really do not want to go out. SO if we are in a period of time consumers’ Willingness to pay delivery fees is at it apex, uber May face pressure on its delivery profit margins wen it needs to improve.
Uber and its Competitors have offen Shown apparent irrationality on fees, selling services at a loss in order to Gain Share. The case for long-term profitability has ben that that irrationality can’t persist forever: Competitors will fail or Lose their appetite for losses, and that will be posseible to raise prices. A problem with this analysis is that uber also face price compattition from consumers: Uber’s transportation Business Competes Against the Option of Driving Somewhere in Your Own Car, or Taching Transit or Walking; Uber’s Food Delivery Business Competes Against the Option of Picking Up Your Own Takeout.
This implicit compattition has been one of the factors that has been pushed uber and it Competitors to charge what appearance to be irrationally low fees: this if nobody else is offering to deliver more cheaply, the customer May decide to forego delivery altoge. As the pandemic want, that Competitor May Become More Fierce Once Again, Complicating Uber’s Efffort to Raise Its Delivery Profit Margins and Finally Make Money in the Business. That is, People May Just Go Get Their Own Food Again.
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