Uber and Potential Market in Germany

Uber is a ride-hailing app launched in 2010 that has considerably revolutionised the world of transportation. This app allows users to order a shared or private car with a few taps away from their smartphone and have the payment immediately taken from the user’s bank account as you complete your ride. Uber also offers several options for services at lower prices than conventional taxis.

The app has gained great popularity since its beginning and has certainly taken over cab services in big cities all around the world, but success doesn’t come alone. The ride app has gained a lot of hatred and legal cases too from its competitors.

Uber services have been expanding over the years since its creation in 2009 and into different fields including the food and delivery industry Uber Eats, Uber Freight the shipping industry, future technology in automated cars and the most recent one launched last Thursday 9 May, Uber IPO in the stock exchange market.

The following report will give an insight into the latest Uber revenue, usage statistics, competitors and current operational complications.

Uber Revenue and Usage Statistics:

Net income: The company reported a net income of £777m in 2018, but an adjusted EBITDA loss of £1.44bn including competitors’ sales of Russian and Asian business to Yandex and Grab, Uber 2018 GAAP losses come to £288m. The company still showed growth in income compared to the £3.12bn loss in 2017.

Company’s revenue: Uber reports and measures its financial results differently compared to other global companies. Uber published its overall revenue which rose from £6.16bn in 2017 to £8.82bn last year but also provides a number for its “core platform adjusted revenue” which “consists primarily of ride-sharing and Uber Eats.” The adjusted revenue metric strips out revenue from excess driver incentives and referrals. In regard to its other service Uber Eats, generated £1.17bn in revenue in 2018 but not enough to cover investment on self-driving cars to its Uber Elevate air-taxi network in research and development costs last year.

Global market key statistics: Uber global market valuation was of £56.18bn in 2018 and Uber investment levels were at £19.27 bn, pre-IPO launching. Figures keep varying, but the company’s market share of Uber is estimated at between 65% and 69%. As UBER shares went public on Thursday 9 May at $45 per share, expectations weren’t met. Raising a minimum of $8.1 billion and putting Uber’s Uber, -4.35% IPO far behind other big companies in the U.S market in years.

Usage Statistics:

1. Uber is today available in 65 countries and over 600 cities in the world.

2. Uber registers 14 million trips a day and according to Uber “Monthly Active Platform Consumers” or “MAPCs” reached at least 91 million of users in 2018.

3. The number of drivers working for Uber adds up to 3.9 million worldwide and the average driver income is £284 a month.

4. In the USA, Uber completes 40 million rides per month making the United States its biggest market.

5. The riding app reported £9bn in gross bookings in the fourth quarter of 2018, going up from £7.17bn the year before. Gross bookings are the full pound value of an Uber Eats, Uber ride, and shippers on Uber Freight.

Uber Competitors and Controversy:

Since Uber app started operating back in 2010 has triggered a numerous amount of backlash from taxi and cab drivers and government bodies. Uber has since then been suspended, regulated, and banned in countries such as Japan, Taiwan, and Australia. Rival apps, listed in the section below, with similar business concepts have been added to the list of competitors challenging Uber’s operation system resulting in controversy and market losses.

Competitors:

Uber’s key rival is American app Lyft, which counts with 1.4 million drivers and generating £1.72bn in 2018. Uber’s Asian competitor Grab which counts with 2.8 million drivers and generated £780m over 2018 and its biggest international competitor Chinese app Didi Chuxing which counts with 21 million drivers and is global net worth is £43.7 bn.

Let’s focus on Europe.

What’s the relationship between the ride-hailing app and Europe? Why Uber has not been able to sweet talk every major city in Europe?

After years of resistance from government regulators and taxi industries all over Europe, including backlash events such as recent strikes in Spain, Germany, France, and the UK because of operation and way of implementing its business model, it seems that the transport war is coming to a head.

This is what it looks like Uber in Europe today, with a focus in Germany:

Uber ride-hailing has been recently banned in major cities such as Barcelona, Berlin, and Madrid due to Uber drivers not being fully licenced and registered as employees with work rights. This means paying the minimum wage, giving sick days and paid holidays. In London, the Uber ride app was granted a 15-month license with numerous conditions and the company has been completely banned in Bulgaria, Denmark, Hungry, Italy and it faces suspension in Finland, Spain, France, and the Netherlands. In Germany, the ride hauling app operates in very few cities.

Let’s take the example of Germany, where Uber isn’t currently available, except as Uber Taxi. The app UberPop was banned in 2015 after a court decided it that violated transport laws. This is largely due to drivers not being held to the same accountability as taxi drivers. The case brought up by German Taxi Deutschland group operator added up to one of more than a dozen multinational lawsuits which have been filed against Uber across Europe.

These multinational lawsuits and controversies stem from Uber’s “principled confrontation” expansion strategy used under Travis Kalanick management. This approach was when Uber began operating in a city until being told that it’s wasn’t allowed to, and it worked in a great number of communities, but not everywhere. Uber wasn’t willing to follow rules and comply with the local laws. This approach generated outrage from taxi drivers and social movements such as #deleteUber. In addition, the EU had no legal regulations for freelance drivers that were declared independent contractors, not employees. Uber represents itself as a digital service, not a transport service, therefore, there was no licenses, exams, health checks or regulations for its drivers, who are considered independent contractor, like taxi companies, do and its seen as unfair competition.

In Germany, the main issue was worker rights, this was the reason why the group of Taxi Deutschland took Uber to court because Uber drivers often lack adequate background checks and insurance. Another reason which provoked backlashes it was the prices, Uber services fees are way cheaper than a traditional business, but at what cost? Uber drivers earn less than the legal minimum wage in certain locations and aren’t always treated the best. Many drivers have complaint that deliveries that appear to be nearby can be much further than indicated, negatively affecting their daily delivery totals, as well, rules for UberEats driver not being allowed tipping.

In early 2017, Uber was forced to pay £15.61m for claims of misleading drivers as to how much they were legally supposed to earn. Since this incident, Uber launched the 180 Days Change in October 2017 an initiative to improve conditions for Uber drivers, which recent studies carried by the company have shown that nearly half of the Uber drivers find themselves satisfied with the initiative.

What happens in countries such as Japan and Germany were Uber is capable to operate in some cities and it's banned from others within the same country? What’s the relationship between the multinational and Germany?

The relationship between Germany and Uber didn’t start with the right foot and that’s was seen in the bans in most of its cities. However, at the moment Uber ride operates In Berlin, Munich, Düsseldorf & Frankfurt with licensed private cars services that work as subcontractors of Uber. This is known as Uber X in the UK. in addition to this service, Uber taxi is also available in those cities. Uber chief executive Data Khosrowshahi said in 2017 that the company will make a great effort to carry a “responsible growth” in EU as he seeks to end the “pirate mentality” that it was imposed previously.

Germany is also working on having a good relationship with the American ride-sharing company. German transport minister Andrea Scheuer wants to open the market to Uber in all its cities by 2020, as he said to Focus Magazine. He then explained that services offered by Uber and other similar companies could help to boost critical services in rural areas. Laws to allow Uber operate need to be changed, but always as long as it follows EU regulations.

As mentioned before Uber has been experimenting and expanding to other industries. The three-year-old food delivering service Uber Eats IPO was more successful this past year than the ride hauling app itself. Uber Data shows that the delivery app brought in £6.16 bn in gross bookings for 2018. However, it needs to be said that Uber Eats is still not profitable enough for the company as such. The tech company says it has chosen to take loss on deliveries for large chain partnerships such as Macdonald’s and paying at times more to the delivery drivers than the actual delivery fees that were charged to customers.

The company is aware of it and it says in Uber filings that the revenue “may continue to decline, as we onboard-large volume restaurants at lower service fee and restaurants with lower average basket sizes, and as we invest in more nascent and competitive markets.”

Uber Eats is the one platform that attracts more customers to Uber’s brand and the multinational believes that partnerships with chains and small and medium-sized restaurants will help grow Uber’s audience. The filing continues to add that the food delivery industry it’s a huge market, “we expect that the home delivery market will continue to grow as a result of the convenience that it proves consumers.”

Why would Uber Eats potentially do well in Germany separately from the ride-sharing business?

As mentioned in the section above both parties, Uber executives and German transport executives, are hoping to have a successful relationship with each other.

According to Uber findings, Uber Eats consumers order 11.5 Uber trips compared to 4.9 rides a month from not Uber Eats.

Latest figures from the Food and Beverage in Germany report for 2019 by Germany Trade & Invest show that 82m consumers make Germany the largest retail market for food and beverages in Europe. The Dutch country food revenue grew significantly reaching £212.48bn in 2017 and it continues to grow due to a growing population with higher average income. This can be demonstrated by the £68.55bn spent on food services sales in 2017.

The food and beverage industry are the fourth largest industry sector in Germany, it produced a total of £157bn in 2017 and has since then been growing. Its industry is characterized by its small and medium-sized enterprise sectors. Sectors where Uber is heavily focusing on now.

Uber could be successful in Germany. There are already similar food delivery services within Germany including Takeaway.com and Foodpanada. According to data collected by Statista, the revenue in Online Food Delivery market amounts to £1,630m in 2019 and revenue is expected to show an annual growth rate from 2019 to 2023 of 4.9% resulting in a market volume of £1,966m by 2023.This competition may seem daunting but Uber Eats has been able to gross rapidly within the U.S. among top competitors like Grubhub and Postmates, going from 3% to 24% of the market share from 2016 to 2018.

Possible risks to take into consideration:

1. Safety food concerns: third party delivery drivers don’t require the same food handless licenses as restaurant workers and that could be potential health and safety risk, and food quality.

2. Uber Eats IPO filing says the company highly depend on their amount of gross bookings with a limited number of chains. if chains are affected, Uber eat is affected.

3. Uber revenue and value aren’t growing as much as expected and they keep investing large amounts of money into air-taxis experimenting loses which has been highly criticized.

4. Though Uber would have to address some of the issues such as minimum wage requirements and background checks for drivers, the main issue of transport laws (the reason for the current ban) would not be a problem.

Uber may have an image problem in Germany as trying to cheat the transport system but if coming in as a food delivery service instead, this negative connotation may be lost.

All in all, Uber has become one of the most successful multinationals since its creation, but it has a lot to work on to increase the value of its damaged market which has been negatively affected due to its management strategies and approaches to different markets.

Uber is no longer seen as a merely ride-sharing app but as a platform on top of several global markets for now. As a business, it produces a huge amount of revenue but also of loses.

The stock market is a gamble and very sensitive to external damages and controversies mentioned in this report, therefore, regarding Uber IPO future results are not looking very good right now.

Health and safety and working conditions for its drivers must improve in order to have an opportunity to remediate previous regretful events for the company, such as its bans accords the world. This would open up new opportunities in big markets such as Germany getting a great chance to make an enormous profit if the company keeps working on its relationship with German transport executives.

References:

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https://www.uber.com/en-GB/newsroom/company-info/

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