Warning lights flashing for investors after chief executive calls profit hope ‘a meme’
Thursday 15 Aug 2019 Author: Ian Conway

American ride-sharing firm Uber Technologies shocked the market last week by reporting a thumping second-quarter operating loss of $5bn on revenue of just $3.17bn. Losses in the first quarter were ‘only’ $739m by comparison.

Total costs and expenses ballooned from $3.5bn in the first quarter to over $8.2bn in the second quarter driven by a more than eight-fold increase in research and development costs ($3.1bn vs $365m in the first quarter) and a more than doubling of general and administrative costs ($1.6bn vs $638m).

SPENDING OUTSRIPPING REVENUES

Chief financial officer Nelson Chai insisted that the company will ‘continue to invest aggressively in growth’ including new programmes like Uber Rewards, which gives customers points and rewards, and Uber Comfort, its equivalent of ‘premium economy’ with newer, larger vehicles and higher-rated drivers.

However revenue missed analysts’ estimates of $3.36bn and the rate of growth slowed again last quarter to 14% compared with 20% in the first quarter.

More worrying, despite positive comments from both Uber and rival Lyft that the price war in the US was easing, turnover at the core ride-hailing business rose just 2% to $2.3bn compared with a 9% rise in the previous quarter.

While growth is slowing, payments to drivers including incentives and referrals continue to climb instead. Spending on trips by passengers increased by 20%, yet the amount Uber kept after paying its drivers rose by just 4%.

GROWTH IN UBER EATS

Most of the growth last quarter came from the food-delivery business Uber Eats, which increased turnover by 72% to $595m following an increase of 89% in the first quarter.

Monthly active platform consumers (MAPCs), or the number of individual customers who ordered an Uber Eats meal at least once in a given month, grew by 140% in the second quarter compared with the previous year.

At the same time new, higher delivery fees helped improve Uber’s ‘take rate’ or the percentage of the gross amount customers paid.

PROFIT JUST ‘A MEME’

The big concern for investors is that still, a decade on from starting operations, Uber not only shows no sign of making a profit but there isn’t even a timeline to get to profitability.

When questioned on the analysts’ call, chief executive Dara Khosrowshahi reportedly replied that demands to know when the company would make a profit were just ‘a meme that’s out there’.

As we flagged at the time of the IPO back in April, Uber was quite open about the fact that operating expenses would ‘increase significantly in the foreseeable future’ and that conceivably it ‘may not achieve profitability’ at all, which was one reason why we suggested that investors steer clear.

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