Uber, the big beast of the gig economy, released it's Q3 Earnings Report yesterday [4 November]. The Gig Economy Project sat through the Earnings Call - with it's endless array of Wall Street bankers asking soft-ball questions - so that you don't have to. Here's five things we learned.
1) Is Uber at risk from the AV revolution?
Uber’s CEO Dara Khosrowshahi made a splash recently when he said that in 20 years, driving a car will be a lot “like horse-back riding”: a largely forgotten skill. That must have been re-assuring for the company's millions of ride hail drivers around the world to hear.
It also begs the question: if autonomous vehicles are the future, why did Khosrowshahi sell-off Uber’s AV division in 2020?
That decision was motivated by the company’s mounting financial pressures in the context of the pandemic. But it now looks increasingly short-sighted, as Uber is positioned as merely a platform to connect passengers to AVs made by other companies, rather than an AV-maker in its own right.
As self-driving cars have become a reality on American and Chinese roads, Khosrowshahi has been busy trying to make sure Uber doesn’t get cut-out of the picture. He has done deals with more than 20 AV makers around the world to provide their vehicles on Uber’s platform, including Google-owned Waymo, British company Wayve and China’s Pony.AI. The latest deal signed at the end of October with Stellantis (the name for automakers Fiat and Chrysler when they merged) and semiconductor firm Nvidia will see Uber operate an initial 5,000 Stellantis robo-taxis, with Nvidia providing the AV software.
On the Earnings Call, Khosrowshahi was keen to stress that while all this wheeling and dealing in the AV market was loss-making for Uber currently, and would be “for the next few years”, it will ultimately go the same way as other Uber products: once demand grows and costs fall, Uber will start deriving profit from robo-taxis on its platform.
The difference between robo-taxis and previous Uber ventures like food delivery is that, in the latter case, Uber controlled the core digital technology. With AVs, the vehicle itself is filled to the brim with artificial intelligence, and many of the company's in the vanguard - like Waymo and Tesla - know a thing or two about building a digital platform. While some AV companies may find Uber to be a useful conduit to access customers in the short-term, in the long-run the company may be seen as an unnecessary middle-man which adds cost but not value, and thus could be cut out of the loop.
2) Uber's profit doesn't impress the stock market
A consistent theme of Uber’s financial disclosures is a use of highly questionable metrics and dubious accounting practices in order to bolster its numbers in the eyes of investors. Remember, Uber lost $33 billion in the first 13 years of its life, before finally turning its first profit in 2023.
It has been profitable ever since, but by how much is an ongoing source of contention. Hubert Horan, the dogged financial analyst and critic of Uber, found in his latest dispatch in February that while Uber was now in the green, it was still inflating its figures through using a favourable proximate for profitability called adjusted EBITDA which excludes a lot fo the company’s costs, by valuing untradeable equity stakes in Russia and China exceptionally highly, and via a complex accounting practice to do with the valuation of taxable assets.
Horan concluded that when the dodgy accountancy was stripped out, Uber’s profits in 2023 and 2024 were exaggerated by 5 points and 18 points respectively, with profits actually being very small indeed.
In this latest Earnings Report, Uber continues to use adjusted EBITDA as it’s headline metric, which was $2.3 billion and up 33% on this time last year, but its ‘income from operations’ was much lower, at $1.1 billion and up 5% on Q3 2024. This metric - which is revenue minus costs and expenses, excluding dubious equity investments and tax asset valuations - gives a much better indication of the company’s real financial performance.
Uber is clearly a company that is now making money but for Wall Street investors, small profits are not very exciting. That perhaps explains why the company’s stock value fell by 8% following the Q3 earnings report was released. Reuters reported that the stock market had reacted negatively to its operational income being lower than the market estimate of $1.6 billion.
At €1.1 billion a quarter it will take 30 quarters for Uber just to re-coup its $33 billion in losses. And as Horan has found, Uber’s improved margins have been largely derived from tightening the squeeze on drivers and riders through algorithmically-determined pay practices. Tightening the belts of drivers and riders for another 29 quarters is hardly realistic.
3) Uber as “a work platform”
One prong of Khosrowshahi’s strategy for expansion is to offer “multiple gigs” to workers, so that an Uber ridehail driver can transfer seamlessly to being a food delivery courier, a trucker or a data labeller. This last role - data labelling - relates to the company’s ‘AI Solutions’ branch (previously called ‘Scaled Solutions’), the first time Uber has established a gig work platform that is not related to transportation.
Uber AI Solutions was launched in November last year to match data labellers with generative AI companies in need of the hidden labour which is indispensable to test and train AI models. Uber’s AI Solutions’ clients include Aurora, an AV company, and Luma, a company building generative AI foundation models. Asked about multiple gigging at the Earnings Call, Khosrowshahi said: “Another way of looking at our platform is that we are a platform for work. The first kind of work we have gone after is transportation, but we can empower other kinds of work as well.”
He went on to say that Uber AI Solutions will be “an opportunity to provide more work as the nature of work changes going forward”.
The transition from being a ride hail driver to a data labeller will not be smooth, to put it lightly. The bottom-end of the data labelling workforce are working for a pittance because they are in a global rat race, competing with other extremely low-paid data labellers all over the globe. A ride hail driver in the Western world is unlikely to find the prospect of competing with a Nigerian or a Venezuelan data labeller who can live on one-tenth of his or her salary very appealing. And, as Khosrowshahi acknowledged in the Earnings Call, at the higher-end of the data labelling labour market, a “PhD in Physics” is sometimes needed to offer accurate human feedback data to a complex AI system.
So Uber’s ‘multiple-gigging’ strategy is unlikely to offer salvation for ride hail drivers worried about their future job prospects, but what it does indicate is that - as Uber looks for new pathways to growth - the company is likely to move well beyond being just a transport-based gig platform.
4) Investor worries about European competition
There was an interesting question posed from an investor anxious about DoorDash’s investment into Europe. DoorDash, an American food delivery platform, bought Deliveroo in May, having already purchased Wolt in 2022, giving it a presence across most of Europe. (Incidentally, DoorDash tried and failed to stop socialist Zohran Mamdani from winning the New York mayoral election with a $1 million donation to his main opponent Andrew Cuomo.)
Khosrowshahi responded to the question by claiming Uber Eats had a "leading position in Europe”, that it was number one in the British and French markets (where Deliveroo operates), and was “gaining category position” in Spain and Germany.
He added that Uber Eats had built its presence in Europe “organically”, whereas DoorDash had to “buy their way into Europe”, which is more costly “from an integration perspective”.
“Competition is going to be a fact,” Khosrowshahi stated.
It’s not a fact that Uber’s investors particularly enjoy, since a monopoly position is the best way to push up customer prices and push down workers’ wages. DoorDash’s international expansion may well be a headache for Uber Eats.
5) Grocery and retail delivery focus
Another of Uber’s big pitches to investors was that it is increasingly focused on going beyond food delivery, targeting the grocery and retail delivery markets.
Uber Eats already offers grocery delivery in many of the markets it operates, and Khosrowshahi said that this was growing faster than the company’s restaurant delivery operation. Uber’s supplemental document for the Earnings Call includes a chart finding that the grocery and retail market is five times the size of the food delivery market.
That may well be true, but grocery and retail delivery bring challenges which restaurant food delivery does not. Whereas restaurant food is prepared to go, groceries are often perishable goods that have to be stored somewhere. That increases the costs of grocery delivery substantially. Also, gross margins on restaurant food are much greater than on groceries, a low-margin business. We have seen how these challenges were decisive in bringing down almost all of the grocery delivery specialist platforms which emerged during the pandemic.
As for retail, Uber has its ‘Shop & Deliver’ section, which allows riders to pay for customers goods - like clothing, for example - in-store. But in retail, Uber is competing in a crowded space, especially with Amazon, the world’s largest retail delivery company. Presumably the idea is for Uber to carve out a niche like in-store paying, but out-manoeuvring established parcel delivery logistics players will not be easy.
Uber’s attempts to find new pathways to growth will be laden with difficulties.
Ben Wray, Gig Economy Project co-ordinator
