Uber: How did it lose over $1 Billion a quarter?

Uber: How did it lose over $1 Billion a quarter? www.insightnews.today

Uber’s first earnings report as a public company shows that while its revenue is higher than last year; the company is still hemorrhaging money. Still, there’s no doubt that the company is getting bigger. The company earned $3.1 billion in revenue for the first quarter of 2019, a 20 percent increase from the same period last year. But its losses were considerable; the company reported a net loss of $1.1 billion.

Uber Eats showed substantial growth in 2019, generating over $536 million in the first quarter and an 89 percent jump year-over-year. The growing popularity of Uber Eats is a mixed blessing for the company, which ends up paying restaurants and drivers more than it earns from users. As for Uber’s ridesharing business, growth was more modest. Adjusted net revenue for rideshare grew 10 percent from this time last year.

The rideshare company saw growth in all regions of the world except for Latin America, where it took a 13 percent hit in revenue from last quarter. Uber is in nine countries in the region, including Brazil, Peru, Mexico, Columbia, and Costa Rica. The company is facing fierce competition from Chinese-owned Didi in Mexico and locally-owned 99Taxis in Brazil, as well as a number of other regional apps.

Nelson Chai, the chief financial officer, laid out a path for costs to eventually come down. On a conference call after the report, Chai said Uber will cut back on customer promotions and that marketing expenses as a percentage of revenue should decline in the second quarter. Shares jumped as much as 4.3% in after-hours trading, following Chai’s comments.

The world’s biggest ride-hailing operator generated $2.76 billion in adjusted revenue in the first three months of the year, an increase of 14% and just exceeding analyst estimates of $2.75 billion. The company, which has under-performed in its first weeks of trading, didn’t issue a forecast in the report Thursday.

Uber’s loss in a single quarter was larger than that of North American rival Lyft Inc. in all of last year, though it fell within the preliminary range Uber had issued on May 13. In the same period last year, Uber had a profit of $3.75 billion, thanks to the sale of international assets. On an operating basis, Uber’s losses more than doubled in the first quarter from the year before.

The stock first started trading on May 10, when it opened below the IPO price of $45 a share. It has remained beneath that point ever since. The price at the close on Thursday was $39.80, giving the business a market value of $67 billion.

Wall Street researchers are still trying to get a handle on how to evaluate the money-losing ride-hailing business. Analysts from at least two dozen banks have been unable to cover Uber because their employers worked on the company’s initial public offering, which was the biggest on a U.S. stock exchange in five years.

Although Lyft beat analysts’ expectations by just about every measure this month in its first financial report, the stock fell. Lyft and Uber have both seen heavy interest from short sellers skeptical of their ability to build sustainable businesses. Both stocks got a boost in extended trading from the Uber CFO’s comments about reduced spending.

But Chai didn’t rule out further heavy spending and reiterated on the conference call that 2019 would be an “investment year.” He said in a statement in the report: “Our investments remain focused on global platform expansion and long-term product and technology differentiation, but we will not hesitate to invest to defend our market position globally.”

One number analysts have their eyes on: Growth of gross bookings, a key measure of what customers spend with Uber, is slowing. They totaled $14.7 billion in the quarter, an increase of 34%, compared with 37% in the fourth quarter. Uber said bookings grew 41% from a year before, after adjusting for currency fluctuations and excluding regions where the company no longer operates.

Another key question for investors is how cutting losses, should that even happen, would impact long-term demand for Uber’s services, Tom White, an analyst for D.A. Davidson, wrote in a note to clients. That could open a door for analysts to spend time digging into more fine-grain metrics.

In the report Thursday, Uber offered new quarterly data. The company revealed that revenue in Latin America fell 13% from a year before amid increased competition. Meanwhile, revenue grew by 26% in the U.S. and Canada.

Uber doesn’t disclose performance data for its individual business units by region. Globally, growth in adjusted net revenue for ride-hailing, which excludes subsidies paid to drivers, stood at 10%, while food delivery sales grew by 31%.

Even by nontraditional metrics, there are signs of weakness. Uber said its core platform contribution margin — a measure of financial health for the ride-hailing and food-delivery businesses — was -4.5%. This wasn’t as bad as Uber’s most pessimistic expectation, but it’s a troubling sign for investors who want to see the economics of the business improve. The contribution margin was 17.9% in the same period last year. Global competition has taken a toll.

Uber said it expects to improve the contribution margin in the second quarter and continue to do so through the rest of the year.

 

 


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