As it gears up for an initial public offering, India’s largest homegrown ride-hailing venture Ola is going all out to trim its massive losses – but at whose cost?
For the financial year 2018-19, Ola’s holding company ANI Technologies posted a nearly 60% year-on-year decline in net loss at Rs 1,160 crore, as per financial data accessed by business intelligence platform Tofler.
The main reasons for this reduction in losses were “decline in its advertising, promotional expenses and driver-related expenses,” said Anchal Agarwal, CEO, Tofler.
The company’s total expenses for the fiscal were reported at Rs 3,315 crore as it drastically cut back on driver-related expenses to Rs 1,700 crore from Rs 2,400 crore in the previous year. “This indicates the reduction in rewards and incentives given to Ola cab drivers,” said Agarwal.
When India’s two biggest ride-hailing companies came onto the scene – Ola in 2011 and Uber two years later – they had promised high salaries and impressive rewards programmes. But soon, driver incentives started fading away and Uber and Ola’s commissions got steeper, nearing 30%.
“Ola had given Rs 500 per trip incentive at its peak and now it is just giving Rs 500 per week to accomplish 50 rides,” said Jaspal Singh, co-founder of research and advisory firm Valoriser Consultants.
So as their incentives are taken away, it’s only natural that drivers are unhappy.
In many cases, cab drivers have been left with car loans that they can no longer afford. In September this year, Quartz India had interviewed a bunch of Ola drivers in Mumbai who narrated heartbreaking stories of how they and their families were barely hanging on by a thread.
Many are struggling to make ends meets. “There is considerable angst among drivers that there is limited visibility and transparency on changes in incentives and rewards,” Yugal Joshi, vice-president at Texas-based consultancy Everest Group. “Not all drivers are always on the same page as the taxi aggregators.”
To voice their concerns, drivers have gone on strikes and protests several times, but that costs them their day’s earnings. And the curb hits harder because most of the drivers already have no insurance, no pension plans and no overtime cover.
Even as Ola’s books look rosier with smaller losses, this cost-cutting could backfire for the company in the future. “This [drastic cutback on incentives] will impact the drivers’ income and may lead to a standoff in the future,” said Valoriser Consultants’ Singh.
But Ola is perhaps in a catch-22 situation because while it risks driver backlash, given what happened to its rival Uber on the US stock exchanges, it has no option but to bring down losses if it wants to do an IPO.
In the public eye
Uber debuted on the New York Stock Exchange in May this year. The much-hyped initial public offering tanked on day one, posting the biggest first-day dollar loss in US IPO history. Even now, seven months later, it has turned out to be a dud because investors still can’t see a clear path to profitability, experts say.
Meanwhile, Ola is “absolute focussed” on going public within the next two years, co-founder and CEO Bhavish Aggarwal said in October this year. But let’s not forget that it, too, has been burning cash for years while raising billions from marquee investors like Japan’s Softbank and Chinese internet giant Tencent.
In India, IPOs have been few and far between in financial year 2019, despite the regulatory environment easing up. But there’s one obstacle for Ola: “IPO will be on the cards as an exit option rather than a funding option for investors. However, listing in India is a distant dream as that needs profitability,” said Joshi.
The one thing working in its favour is that Ola is already a $5.7 billion behemoth with a fleet of two million drivers. It need not splurge more on driver acquisition, Singh said. But while it reduces outgoings, “the key issue is that the revenue per ride is low and there is a limit to increasing the price due to affordability factor,” he added.
That’s why Ola is trying to expand to more mature markets like Australia, New Zealand and the UK, where the average ticket sizes are way higher than in India. It’s revving up for a London launch while Uber’s licence in the city was revoked. Plus, it is steering a slew of revenue streams, from cloud kitchens to its unicorn electric vehicle business.
This article first appeared on Quartz.
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