SEC wants line items on driver wages disclosed in Uber’s IPO

More interesting than what Uber shared in its latest quarterly report was what it left out.

Through the second quarter of 2018, which ended June 30, Uber broke out numbers on driver earnings, disclosing them in a “contra revenue” section of its income statements. They were interesting! The company split driver pay into two categories: “net partner earnings” and “partner incentives and misc. payments.” (“Partner” is Uber’s preferred way of referring to the independent contractors who work for it as drivers.)

The driver portions of Uber’s reports showed why ride-hailing is such a low-margin business—and why the company would be eager to move to a driverless model: In the second quarter of 2018, 72% of gross bookings went to drivers. In other words, the vast majority of sales or “gross bookings” Uber generates aren’t retained by the company. For Uber, one route to becoming profitable is to shrink the share of bookings passed to drivers, which it did by about 4 percentage points from January 2017 to June 2018.

You can see why these contra revenue line items were revealing. But in the third quarter of 2018, ended Sept. 30, Uber removed its contra revenue section, including breakouts on driver earnings and incentives. Put another way: Uber stopped telling investors how much it pays to drivers.

Uber said at the time that it made changes to its third-quarter reporting, including removing contra revenue line items, as it moved toward GAAP (generally accepted accounting principles) best practices ahead of an initial public offering. Details on driver pay remained absent from the fourth-quarter results Uber shared with investors on Feb. 14.

It’s an open question whether the US Securities and Exchange Commission (SEC) will decide these line items on driver wages, which Uber broke out semi-publicly for at least six quarters, need to be disclosed in the company’s IPO prospectus and quarterly reports as a public company. One indicator will be whether competing US ride-hail firm Lyft shares details on driver earnings and incentives when it makes its IPO filling public, which reportedly could happen as soon as next week.

How important are these driver-specific line items? That depends who you ask. An investor, for example, might be less interested in the details of driver pay than the sum left over for Uber after those expenses are paid. The same investor might be perfectly content to look at Uber’s net revenue relative to gross bookings to evaluate the health of the business.

But investors aren’t the only ones interested in Uber’s business, and line items on driver pay could be quite instructive to drivers seeking more insight into their wages. Drivers have long suspected Uber of taking a larger cut of their fares. The vastness of Uber’s driver network, at roughly 3 million drivers globally, makes it hard to say conclusively whether the average driver is earning less. The contra revenue line items offered another way of looking at this.

In the first quarter of 2018, for instance, gross bookings rose 55% from the same period the previous year, to $11.3 billion. But overall driver earnings (net earnings plus incentives and miscellaneous payments) increased by less, 49%, to $8.3 billion. From January 2017 to June 2018, the share of gross bookings that went to drivers dropped from 76% to 72%.

These numbers offered a glimpse into the complex and often opaque machinery of how Uber pays drivers. Unless the SEC instructs Uber to bring these numbers back, that slight transparency may be gone.

~qZ