Posted on November 15, 2018 by Yves Smith
From Hubert Horan:
3q P&Ls released tonight. Losses and margins got worse. Gross revenue growth continues to slow down, showing their inability to fix the fundamental weakness in the core car service business.
Expenditures on the marginal business (food delivery, scooters) that are key to the longer term growth narrative drag results down further.
Mainstream media coverage hasn’t reached “The Emperor has no clothes” point yet, but stories are raising explicit doubts about the viability of next year’s IPO.
Actually, as we’ll discuss, there are Uber skeptics, just not necessarily among reporters.
First, from Eric Newcomer at Bloomberg, who shows doubts about Uber’s proposed IPO valuation of $100 billion and its oft-made claims that it’s another Amazon:
Uber’s sales are dramatically slowing even as the ride-hailing company is spending more to fuel global growth, particularly in its food delivery business. Revenue growth of 38 percent in the third quarter was almost half of what the growth rate was six months earlier, when the company was negotiating a $9.3 billion investment led by SoftBank Group Corp.
That’s a troubling sign for a serially unprofitable business that hopes to get valued like a technology company in a planned initial public offering next year. Uber Technologies Inc. lost $1.07 billion in the quarter ended Sept. 30, an improvement over a year ago, but the loss widened 20 percent from the second quarter.
Highly valued companies typically grow quickly or generate big profits — and great ones do both. In the fourth quarter of 2005, Amazon.com Inc. had about the same revenue as Uber’s today — just under $3 billion, not adjusted for inflation. Yet, Amazon earned $199 million in profit and was worth about a fourth of Uber’s $76 billion valuation.
TechCrunch was more credulous, and also touted a more flattering profit metric:
Uber, which is expected to go public sometime next year, just released its Q3 2018 financial results. Uber’s net losses increased 32 percent quarter over quarter to $939 million on a pro forma basis, though Uber expected these losses as it continues to invest in future growth areas.
On an earnings before interest, taxes, depreciation and amortization basis (EBIDTA), Uber’s losses were $527 million, up about 21 percent quarter over quarter. And as Uber prepares to go public, the company has started presenting the income statements with stock-based compensation.
Ten years from now, Uber CEO Dara Khosrowshahi envisions its core ride-hailing business accounting for less than 50 percent of Uber’s overall business, Khosrowshahi told me at TechCrunch Disrupt SF 2018. That means Uber expects businesses like Eats, scooters, bikes and freight to contribute to be more of Uber’s business, which requires Uber to invest heavily in those businesses.
And why should we expect UberEats and scooters to become profitable? Just because Uber wants it to be so?
The New York Tines’ story came off like a string of Uber talking points, with the only apparent real cause for pause that Lyft is also planning its IPO for 2019. For instance:
Uber’s I.P.O. is likely to create an enormous financial bonanza for its many investors and shareholders, including the company’s co-founder, Travis Kalanick, as well as venture capital firm Benchmark and the Japanese conglomerate SoftBank.
To get ready for a public offering, Mr. Khosrowshahi has been trimming Uber’s money-losing businesses. Uber has withdrawn from markets including Southeast Asia and Russia, where it faced stiff competition and was spending a lot of money. It has focused on other areas, like food delivery, as well as other geographies that show more potential for growth. On Wednesday, Uber began a loyalty program that will give riders access to extra perks the more frequently they use Uber services.
Uber said Uber Eats, its food delivery business that started in 2015, was growing rapidly, with bookings through its separate app up 150 percent from last year.
Yet Uber’s spending also continues to rise. The company said its total costs and expenses were $3.7 billion in the third quarter, up from $3.5 billion in the prior quarter.
It would be more accurate to say that Uber is cutting some loss-generating operations while expanding others.
Finally, to the Wall Street Journal:
The results for the three months ending in September show that Uber is still growing quickly but is likely to be unprofitable for some time. In documents for a bond offering last month, Uber said it expected it wouldn’t reach a profit for at least three years.
Uber has turned its attention to providing customers with a host of transportation options in addition to its core ride-hailing service. Mr. Khosrowshahi said he is particularly hopeful about electric-scooters and bicycle rentals, which he has said can be a low-cost replacement for short car trips in urban centers.
“What we’re going after is essentially to debundle car ownership,” Mr. Khosrowshahi said in an interview at The Wall Street Journal’s WSJ Tech D.Live conference Tuesday. “A world in which the people who cannot afford to buy a car have access to consistent mobility wherever they are, that’s a better world.”
Of the 22 comments on the story so far, only one read as positive, and other readers dismissed it as bad sarcasm. And remember that WSJ readers viciously attacked the initial stories on the Theranos fraud, accusing the journalists of being jealous of a talented entrepreneur. A sampling:
charles cotton
I’ve been tracking Uber and its copy cat, Lyft since 2013. The underlying root of their both their problems is that there business platform is toxic and can not ever make a profit. The burn rate is over 90% of investors money which has resulted in a meltdown. Outside investors have dried up and quite frankly dismayed. Such investors were all reckless, naive, and greedy being lured by hyped, false financials and advertising.
The promise of “get in quick, we’re going public’” being the worm on the hook. There were no accurate disclosures or prospectus given to the investor…. No one really knows what is going on at Uber.”
Joseph Swartz
Uber may be the biggest con game the Street has seen in decades…..an IPO of a Company that loses billions of dollars, subsidizes every ride we take, and has gone off the path with Uber Eats, a ridiculous venture. I recently read it’s drivers last about 6 months, on average, before quitting.
Uber has no plan to make money – it would have to raise fares 2 to 3 times to become profitable – how long will investors continue to subsidize a Company that promises to make it up in volume.
Gary Ayer
Uber is raising money via a public offering because otherwise they would go out of business due to continuous losses.
Jef Kurfess
Doing a thriving business selling dollar bills for $.85?
So Uber’s PR machine is having less and less success in keeping its story going. But will polite press amplification be enough to save Uber’s bacon.
