After seven years of launch and burning millions of dollars, ride-hailing platform Ola is finally getting closer to achieve profitability. It has been able to make money on each ride, after offering driver incentives and customer discounts.
Late last month, Ola CEO Bhavish Aggarwal announced the achievement in an email to his team and said India business crossed a major milestone. It is now effective net take rate (ENTR) positive.
Take rate refers to the fees and commissions that Ola collects from its drivers on each ride, and ENTR is the take rate after taking away costs like discounts per ride.
Importantly, Ola has been able to do so competing against the global giant Uber. It still claims to retain the top line growth and market share in the ride-hailing space in India.
According to two Entrackr sources inside the company, Ola has been doing about 1.5 million rides on a daily basis. This is a significant jump from last year when it used to do about a million rides.
Aggarwal further added that the company is aiming to become profitable this year. “We will continue to focus on profitable and sustainable growth, and building a growing profitable business, the first in Indian internet,” he wrote.
How did Ola become ENTR positive?
In the past one year, a lot has changed in the ride-hailing industry, especially the relation between the companies and partner drivers.
The monthly incomes of the drivers have taken a hit, owing to cost-cutting and subsidy reduction by Ola and Uber both.
According to research consultancy Redseer’s report, the take-home pay for drivers dropped 33 per cent in the last one year.
The report added that the average income of these drivers, which includes incentives but excludes EMIs on their vehicles, has come down to Rs 21,000 per month in the second quarter of 2017 compared to Rs 31,000-32,000 made during the same quarter in 2016.
The cut on drivers has immensely helped Ola reduce its burn rates.
Is it so soon to predict profitability?
Ola’s profitability graph, however, falls when it comes to overall expense of the company considering spending on employees’ salaries and technology maintenance.
Amidst this Ola’s operating loss has increased 32 per cent to Rs 3,731 crore in FY17 while operating revenue more than doubled to Rs 1,178 crore. Besides, its other expenses (not explained) also rose up to Rs 4,052 crore from Rs 2,422 crore.
India’s biggest ride-hailing platform hasn’t yet described how it will cut the increasing operating losses and achieved the full profitability in the next five months.
The development was first reported by ET.