Uber Could Fastrack Expansion of its Delivery Business as Q1 Earnings Doubles Ride-hailing
Uber Could Fastrack Expansion of its Delivery Business as Q1 Earnings Doubles Ride-hailing
For years, Uber's flagship ride-hailing business has been the company's primary source of revenue. Despite the decline in rides, the segment contributed 75% of the company's revenue in 2019 and 55% in 2020.
This is changing, however, as the company refocuses its efforts and resources on Delivery. According to Uber's recently released first-quarter report, its delivery business generated approximately $12.4 billion in gross bookings. This is nearly double the $6.77Bn gross bookings of its ride-hailing subsidiary.
This is unsurprising, given Uber's reliance on its delivery service to compensate for revenue lost during the pandemic. Uber Eats now offers delivery of essential goods and medications in addition to grocery, convenience store, and core food delivery.
Uber generated approximately $2.9 billion in revenue over the three-month period. However, it was less than last year's $3.2 billion during the same period.
Delivery accounted for 58 percent ($1.7 billion) of total revenue, while ride-hailing accounted for just 30 percent ($853 million).
The net loss was approximately $108 million, a significant improvement over the $968 million loss recorded in the company's fourth quarter of 2020. However, this was largely due to a $1.6 billion gain on the sale of its autonomous vehicle unit, ATG.
In total, the company reported an operating loss of more than $1.5 billion for the quarter.
Additionally, the report indicates that trips recorded during the quarter totaled 1.45 billion, a decrease of 13% from the 1.6 billion in Q1, despite continued growth in delivery trips.
It added, however, that monthly Active Platform Consumers ("MAPC") reached 98 million, with at least five visits per month.
Ride hailing trends are improving but Uber still face challenges
Despite the decline in ride-hailing revenue, Uber reports that its rides are recovering in some markets as coronavirus vaccines become available and restrictions are relaxed.
However, the e-hailing company continues to face a number of obstacles. To begin, there is an immediate and growing need for additional drivers.
The platform reached 3.5 million active drivers and couriers during the quarter. This is a 4% increase over the previous quarter, but is still 22% below the number of drivers in Q1 2020.
The company announced last month that it would invest $250 million in a one-time stimulus program aimed at re-engaging drivers. Additionally, it is exploring ways to monetize drivers through its platform's other services, such as delivery.
However, if it is unable to recruit enough drivers to meet demand, the company may face irate customers who have several other options.
Another issue it must address is its driver classification system. For years, Uber's classification of driver-partners as gig workers has been called into question on a number of fronts.
Despite Prop 22's victory in California, the UK's Supreme Court ruling reclassifying drivers as workers has put pressure on the company.
The company has already taken a $600 million hit to ride-hailing revenue as a result of the accrual made to settle historical claims in the United Kingdom. Now, drivers in countries such as Nigeria and South Africa are requesting classification as workers.
If a similar measure spreads to additional markets, it may make it more difficult for the company to achieve profitability.
Uber could embark on global scaling of its delivery business
Uber initially intended to expand its delivery business, but Covid-19 has accelerated that expansion. The company has also made a significant push into the delivery sector in the last year, diversifying its verticals beyond food.
It acquired alcohol delivery service Drizly and rival food delivery service Postmates, and formed partnerships with a number of other businesses, including convenience store delivery service GoPuff.
Uber Eats has expanded into Brazil and Germany since the pandemic and exited eight markets, including Egypt, Saudi Arabia, and Uruguay. The company stated that the exits were made to focus on its core markets.
However, with the delivery business booming, the company may be considering expanding into additional markets, particularly Nigeria, which has Africa's largest population.
Uber Eats launching in Nigeria is not a novel concept. It was mentioned as a possibility in 2016 by Ebi Atawodi, General Manager, Uber West Africa. The pandemic may serve as the impetus for its eventual launch.
In countries such as Brazil, which has a large population and low purchasing power, similar to Nigeria, Uber deliveries follow a low-cost model to capture a large portion of the market.
Additionally, the company follows a similar model in all three African countries where it has launched operations: South Africa, Kenya, and Egypt.
However, Uber's delivery division is managed by subsidiaries in some countries. This means that Uber will acquire one of the market's largest players and hand over the eats business to them. Careem in the United Arab Emirates and Postmates in North America are two examples.
Another option is to integrate Uber's ride-hailing platform with Uber Eats, which has begun testing in the United States and Canada.
If the delivery service is launched in Nigeria, it is likely that the company will follow the model used in Brazil or South Africa, depending on the location.
This could also mean more partnerships with retailers and e-commerce platforms in the country, as Uber Eats has expanded beyond restaurant delivery to include verticals such as grocery and medication delivery.
In conclusion, the pandemic continues to have a detrimental effect on Uber's ride business but a beneficial effect on its delivery business. And the company anticipates that trend will continue in the second quarter, with the mobility rate expected to decline by approximately 20%.
Nelson Chai, Uber's chief financial officer, also noted that growth in delivery may become more difficult as forecasts predict uncertainty in post-reopening consumer behavior.
Despite the forecast, Dara Khosrowshahi, Uber's CEO, believes the company is firing on all cylinders. He explained that more consumers are riding with the company again, and the company plans to continue expanding its delivery options.
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