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Uber’s Wheels Are Coming Off amid a $1 Billion Loss

Last Updated September 23, 2020 12:53 PM
Lawrence Meyers
Last Updated September 23, 2020 12:53 PM

Mega-unicorn Uber reported earnings, or rather losses, on Thursday that demonstrate why hype doesn’t always work in a company’s favor.

Let’s hit the headline number s and explain what they mean for Uber’s stock.

Solid Growth Across the Board

Just like its rival, Lyft, Uber saw a significant increase in gross bookings. That metric was up 31% to $15.76 billion. That was compared to just $12 billion last year.

Monthly active platform consumers, which is the number of consumers who use Uber at least once a month, grew by 30%, from 76 million to 99 million.

Given that the gross bookings increase is almost exactly the same on a percentage basis, it’s safe to say that it is the direct result of all these new customers.

We see that also reflected in the total number of trips, which increased 35% from 1.24 billion to 1.68 billion.

A little division tells us that the average consumer uses the service about 16 times per month.

That’s a very intriguing number.

What the Numbers Mean for Uber

The casual utilizer of the platform might use it just three or four times a month. This data suggests, although it doesn’t prove, that the service sees consistent popularity in large cities with businesses and possibly even people who have sold their cars and use rideshare instead.

Here’s something that may have fooled investors. Revenue only increased by 14%, from $2.77 billion to $3.17 billion. In the face of a 30% increase in bookings, a 14% increase in revenue suggests that price wars are still occurring.

The other possibility is that, despite an increase in the number of consumers and trips, people are taking shorter trips.

Yet one has to adjust for foreign exchange and report revenue in constant currency as well as back out the Driver Appreciation Reward ($290 million in driver rewards for the IPO). Then revenue increased 26 percent, which is more in line with the 31 percent growth number.

Backing out the stock-based compensation expense, the company lost $1 billion – just like Lyft lost money. That’s a significant increase over the same period last year, in which the company lost $878 million.

Plenty of Cash on Hand

Despite this loss, the company sits on over $20 billion in cash and investments offset by only $4.5 billion in long-term debt.

So even though the company burned $1.64 billion in cash in the past year, it has plenty of resources to deal with losses for quite some time to come.

In the meantime, Uber continues to expand its flagship product while growing its subsidiary products like UberEats.

The latter product generated $595 million in the quarter, up from $346 million in the same quarter last year. That’s an impressive growth rate of 65%. However, it is also worth knowing that driver incentives chop $253 million off of this quarter’s number, almost double what it was at this point last year.

Thus, actual adjusted revenue for this segment increased by $117 million, or about 50%.

Buy, Sell, or Hold Uber?

That leaves us with the difficult question as to whether Uber’s stock, which was down 3% in after-hours trading to $41.60, should be bought, sold, or held – or possibly shorted.

Backing out net cash, the business itself is being valued at $58 billion. On an annual run rate of $13 billion in revenue, that means Uber is trading at about 4.5 times revenue, almost exactly the same valuation as Lyft.

Alphabet aka Google is trading at 5x revenue, but it’s also incredibly profitable. Amazon trades at about 4x revenue, but it is also profitable.

It seems to me that Uber remains a unicorn in terms of valuation and should be avoided for now.

Disclaimer: This article is intended for informational purposes only and should not be taken as investment advice.