Uber Faces a Stark Choice Amid Mixed Third Quarter Earnings – Show Profitability Soon or Go Extinct Dodo Bird Style

Nov 4
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Uber (NYSE:UBER), the American multinational ride-sharing company, posted mixed results for the third quarter of 2019. The company beat EPS expectations but gross bookings – a closely watched measure of the total amount customers paid to the platform before factoring in drivers’ pay and other fees – came up short of estimates.

“Our results this quarter decisively demonstrate the growing profitability of our Rides segment. Rides Adjusted EBITDA is up 52% year-over-year and now more than covers our corporate overhead. Revenue growth and take rates in our Eats business also accelerated nicely. We’re pleased to see the impact that continued category leadership, greater financial discipline, and an industry-wide shift towards healthier growth are already having on our financial performance,” said Uber’s CEO Dara Khosrowshahi.

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For the three months that ended on 30th September 2019, Uber reported adjusted revenue of $3.53 billion against expectations of 3.39 billion, thereby, exceeding the target by $140 million. The metric also marks an increase of 32.7 percent when compared with the comparable quarter of 2018. This time around, UberEats – one of the highest growth segments for the company – failed to live up to its hype. The food delivery platform’s bookings increased by a whopping 73 percent annually and 8 percent sequentially to $3.66 billion but fell short of the $3.85 billion expected. After adjusting for $401 million in stock-based compensation expense, the company reported a loss of $585 million. This constitutes a substantial improvement relative to the consensus expectations for a loss of $805.1 million. Nonetheless, the metric marks an aggravation of 28 percent when compared with the adjusted loss of $458 million reported in the third quarter of 2018. Crucially, Uber’s ride-sharing bookings grew 20 percent on an annual basis to $12.55 billion versus expectations of $12.51 billion. As a refresher, the company had reported ride-sharing bookings of $10.48 billion in the comparable quarter last year. Additionally, Uber reported a GAAP EPS of -$0.68 against a consensus EPS estimate of -$0.84.

For the full year of 2019, Uber now expects an adjusted EBITDA loss of between $2.8 billion and $2.9 billion against previous guidance for a loss of $3.2 billion. This latest guidance from the company also marks a substantial improvement when compared with the consensus expectation for a full-year loss of $3.19 billion.

In a critical announcement, Uber declared during the earnings call that it now expects to turn profitable on an EBITDA basis in 2021, or at about the same time that its largest competitor Lyft (NASDAQ:LYFT) anticipates a positive bottom line. Bear in mind that in August, Uber had said that it expected 2019 to constitute its “peak investment” year and that the company’s losses should initiate a declining trend thereafter.

Uber’s stock price plunged by as much as 5.66 percent to $29.32 (as of 17:13 ET) during the after-market trading on the back of mixed results for the latest quarter. Additionally, the ridesharing firm’s stock is down over 24 percent relative to its IPO price (read our previous coverage here for additional context). Another factor that could heighten the stock’s short-term volatility is the imminent expiration of Uber’s post-IPO lock-up period due this Wednesday and upon which the insiders will be free to sell the company’s shares that they own. As a reference, Beyond Meat (NASDAQ:BYND) – another company that went public in May – saw its shares tank by more than 20 percent after its lock-up period ended last week, even after delivering better-than-expected quarterly results and raising the full-year guidance.

The latest results by Uber and Lyft and the corresponding stock price action show that the market is still not convinced about the financial viability of the ridesharing business model. Uber and Lyft are, for all intents and purposes, losing money on every ride and, consequently, each firm is attempting to gain market share – and the attendant additional revenue – from the other by cutting pricing. Given the current, rather stale, economic expansionary phase and the corresponding expectations for a recession by 2020/2021, both Uber and Lyft are, presently, at a do-or-die stage: they must establish the feasibility of their business model soon or risk an extinction.

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