Cost structure of Uber:

The total expenses of the company were around $2.5 billion in the year 2016 but increased to $6
billion in the year 2018 and are predicted to be $9 billion by the year 2021. Majorly the cost structe
of Uber consist of Sales and Marketing, Cost of Revenue, Administrative expense, Research and
Development, operation and support and Depreciation and Amortization.

One of the primary reasons for the threefold increase in the total expense is due to increase in Cost
of revenue. Cost of Revenue includes incentives paid to drivers, insurance costs, mobile device and
service expenses etc. From the information provided during Uber’s IPO we can see that in the year
2018, the company spent around 50% of its earnings on Cost of revenue. This amount was 35%
higher compared to last year as the company increased the cost by increasing incentives for the
drivers. This “excess incentive” can be described as the amount paid higher than the revenue earned
by a particular driver. The other major component which accounts nearly 15% of the operating cost
is General and Administrative expense. A twofold increase can be seen in this component as it went
from $1 billion in 2016 to $2 billion in 2018. Apart from these, Sales and Marketing forms the next
big expense for the company as it spent nearly 28% of their revenue on this as of year 2018. This
category includes credit from customers, discounts to riders, promotions, refunds and related
expenses. The company spent around $3.2 billion in the year 2018 which was 25% higher compared
to the last year. On the other hand, most of the driver’s promotions are included in Cost of Revenue
whereas referral bonuses form a part of sales and marketing and were decreased by $63 million in
the year 2018. Research and Development also form a significant part of Uber’s total expense as the
company spent around 13% of its revenue on this category. It involves the investment made to
develop self driving cars with the help of ATG (Advanced Technologies Group). The company spent
around $1.5 billion in the year 2018 slightly higher from previous year’s expenditure of $1.2 billion. It
is speculated that this expense might go up to $2 billion by the year 2021. Operational and support
also from small part of the cost structure for the company. This category includes customer support,
driver operations, community management and related expenses. This category increased from $0.9
billion in year 2016 to $1.5 billion in the year 2018. It is speculated to increase to $1.9 billion by the
year 2021. Overall the expenses are growing at a slower rate compared to revenue which may lead
to profitability for the company in near future.