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Comment by steven2012 | Hacker News Reader

steven2012

It is actually viable for Uber to recognize the entire fare as Uber's revenue, even though they get 20% cut. There are a bunch of rules for revenue recognition, and one of them is that if the customer perceives the driver as being an agent of Uber, then the recognized revenue is likely the entire fare.

If a customer has a problem with a particular driver, they contact Uber, they don't contact the driver directly. This is a key fact that makes a strong case for recognizing the entire fare as revenue.

The difference with Groupon is that the customers were still interacting with the end merchant, ie. whoever supplied the coupon, as opposed to Groupon as a whole.

One problem with recognizing the entire fare is that their margins will look a lot worse.

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Nope, it's contrary to GAAP for Uber to recognize the full fare as revenue so long as Uber stands by its claims that drivers are independent contractors and not employees and Uber is just facilitating payment. (By definition, an independent contractor is not an agent.)

If Uber is only entitled to X% of the fare, then under GAAP it can only recognize that X% as revenue. This is the exact same funky accounting that Groupon used. (Note that customers of Groupon would also take their problems to Groupon, not the merchant.)

No, your analysis is too superficial and rev rec is more complex than that under GAAP. It who the customer believes they are dealing with. The drivers, regardless of their employment status, are looked upon as "uber drivers" and customers contact uber for refunds or disputes, not the driver. So in this example, a strong case could be made that the entire fare is revenue.

The difference with Groupon is that the end merchant is never hidden from the customer, and the customer knows that the end merchant doesn't work for groupon. Groupon in this case is a facilitator for the transaction just like Expedia is a facilitator for airlines.

Rev rec is complex and many layers to it. An auditor goes through a series of tests to determine whether revenue is recognizable and no single test determines it so in some senses it's more an art than a science. And I don't have a full grasp of uber's arguments to their auditors but I doubt they have a strong case for recognizing the entire fare as revenue.

By this thinking, does Airbnb then also measure the entire cost of the listing as revenue? I don't know much about accounting or finance, but this seems a little misleading to me.

In my mind, Airbnb is a marketplace and Uber is a service provider. The distinction is mostly arbitrary and driven by marketing/perception, though.

I agree, but I think the distinction is not arbitrary. The kicker is that you pick the Airbnb provider individually, based on individual house/room profiles. You don't say "give me a room in Seattle on this date, any room". Whereas with Uber you say "bring me a car now to this location, any car". You don't browse through car providers and say "ok, I'll specifically take the blue Lexus, and only the blue Lexus".

Airbnb is likely more like Groupon, because when you deal pretty directly with the owner of the property, whereas when you get a Uber ride, they are known as an "Uber driver". The owners of the properties do not purport to be agents of AirBNB.

But the case could be made either way, and it's up to the auditors to determine which is more appropriate, since they have direct access to the financials, etc.

It's also not a fixed 20%, they seem to be willing to forego a portion of that when driver supply is low.

Isn't what's being called revenue in this article comparable to what ebay recognizes as "gross merchandise volume"?

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