What Are The Key Drivers Of Uber’s Expenses & When Can It Break-Even?

Ride-hailing behemoth Uber (NYSE: UBER) went public earlier this month, with its stock currently down by close to 10% from its IPO price of $45 per share. While the company remains the undisputed leader in the ride-hailing space, there are concerns relating to its business model, cost structure, and it still remains to be seen if the company will ever make money. Below, we take a look at some of Uber’s key cost components and provide a scenario which could see the company reach operating break even by 2021.

View our interactive dashboard analysis on The Key Drivers Of Uber’s Expenses & When Can It Break-Even? You can modify key drivers to arrive at your own estimates for the company’s operating profits.

How Have Uber’s Operating Expenses Grown Over The Years And What’s The Outlook?

• Uber’s total expenses grew from about $7 billion in 2016 to about $14 billion in 2018, driven primarily by higher cost of revenues.
• We project that total expenses will stand at about $21 billion by 2021.
• YoY Growth rate of expenses has declined from 75% in 2017 to less than 20% in 2018.

What Are The Key Drivers Of Uber’s Operating Expenses?

Key Driver 1: Cost of Revenue

• Cost of revenues is the biggest driver of Uber’s expenses, accounting for a little over 40% of total OpEx.
• This includes Core Platform insurance expenses, credit card processing fees,  data center expenses, mobile device and service expenses.
• Cost of revenue rose from around $2.5 billion in 2016 to about $6 billion in 2018. We expect the metric to rise to about $9 billion by 2021.
• However, we expect the cost of revenue as a % of revenue to post a steady decline, driven by better economies of scale.

Key Driver 2: General and Administrative expenses

• G&A expenses are Uber’s second largest expense item, accounting for about 15% of total OpEx
• G&A expenses include compensation for management and administrative employees (finance and accounting, HR, and legal etc)
• Metric increased from around $1 billion in 2016 to about $2 billion in 2018.

Key Driver 3: Sales and Marketing Expense

• Sales and marketing expenses include expenses relating to advertising, salaries to sales and marketing employees as well as consumer discounts, promotions, refunds, and credits and related expenses.
• The metric has increased from around 1.6 billion in 2016 to 3.2 billion in 2018. We expect it to increase steadily to over $5 billion by 2021.

Key Driver 4: R&D Expenses

• Uber’s R&D expenses have increased from around $0.9 billion in 2016 to about $1.5 billion in 2018, driven by the company’s platform improvement investments and other technology bets such as self-driving cars.
• We expect the metric to rise to over $2 billion by 2021.

Key Driver 5: Operations and Support Expenses

• These expenses include costs of supporting operations in cities, including driver operations, community management, and customer support.
• Expenses have increased from around $0.9 billion in 2016 to $1.5 billion in 2018.
• We expect them to grow at a slower pace to about $1.9 billion by 2021.

When Can Uber Reach Operating Break Even?

• We expect Uber’s revenues to grow to levels of over $20 billion by the year 2021.
• Using the above forecasts for the company’s various expenses, we believe that it’s possible that it will approach operating break-even by 2021, as growth in expenses has been slower than the growth in revenues.
• You can arrive at your own estimates for the company’s operating profits and break-even using our interactive dashboard analysis: The Key Drivers Of Uber’s Expenses & When Can It Break-Even?