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Uber’s Driver Incentives Surged to ~10% of Revenue in Q1 2019

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Uber’s revenue in Q1 2019

In the first quarter, Uber Technologies (UBER) reported revenue of $3.10 billion, up 4.2% sequentially and 19.9% on a YoY basis. This revenue figure was also slightly better than Wall Street analysts’ consensus estimates of $3.04 billion. The company’s adjusted net revenue growth for the quarter was slower. Let’s find out why.

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Lower adjusted net revenue growth

In the quarter ended March 2019, Uber spent $303 million on excess driver incentives, up from $129 million spent in the quarter ended March 2018. During the quarter, the company spent $35 million for driver referrals, up from $32 million spent a year ago.

After deducting these two increased expenses from its total revenue, Uber’s adjusted net revenue stood at $2.76 billion in the first quarter, up 13.9% YoY, lower than 19.9% YoY growth in its total revenue.

Why should investors care?

Interestingly, ridesharing companies, including Uber, try to attract drivers to work with them by paying them incentives. These incentives play a major role in drivers’ decision to work with a particular ridesharing company.

In the first quarter this year, Uber paid more aggressive incentives, which were nearly 9.8% of its total revenue and 10.3% of its core platform revenue. In the first quarter of 2018, these incentives were about 5.0% of their total revenue and 5.1% of their core platform revenue. In its first-quarter earnings conference call, the company revealed that it primarily increased driver incentives in the US and Latin America.

A significant increase in its driver incentives is a part of Uber’s strategy to grow and expand faster than its competitors. While higher incentives could temporarily attract drivers to work with Uber, the impact on the ridesharing company’s long-term growth strategy remains uncertain.

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