Ola starts making money on rides; eyes profitability

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Ola, one of India’s largest cab aggregator’s has finally started making money on each ride. It is now targeting profitability before it can move towards public offering for the company in the coming years.

Earning money on each ride is a huge milestone for the company considering company expenses involved in customer discounts and driver incentives.

In an email addressed to his employees, Bhavish Agarwal, CEO, Ola, wrote, “Last week, our India business crossed a major milestone. We are now ENTR positive,”.

ENTR, an important metric for ride-hailing companies is “effective net take rate”. Take rate is the commission charged by the cab companies like Ola and Uber from their drivers. While ENTR is calculated after deducting the cost like discounts per ride.

In achieving these targets, Ola has not sacrificed its market share and growth, which is another equally commendable milestone for the company, as described by Aggarwal in his email.

He further added that the company is determined to become profitable by the end of this year. There is still a lot that needs to be done before the company can realize its goal of profitability, as it still needs to recover the salary expenses along with the expenses on technology.

In a constant battle with another cab aggregator, Uber, Ola has burned a lot of cash in trying to gain and keep its market share.

In FY17, Ola’s operating loss increased by 32% to ₹3,731 crores, while operating revenue more than doubled to ₹1,178 crores. Its variable costs including advertising and promotion came down from ₹438 crores to ₹285 crores. Although its fixed costs involving salary expenses increased from ₹461 crores to ₹572 crores, as revealed by the company filings with the ministry of corporate affairs.

It has also predicted a net operating loss for the ₹1235 crores for the year ending March 2019, along with a profit of ₹746 crores for the year ending March 2020.

Cutting discounts for customers and driver incentives along with subscription-based services like share and select pass have played a vital role bringing down costs. Overall, driver incentives have decreased to nearly 20% from a high of 60% back in 2016.

If Ola can keep up its profitability, as it competes with Uber constantly, its plan of going public could well be in its reach. Foodpanda, a food delivery venture acquired by Ola could also help with its goals in the coming years.

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