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The one main reason why Uber stock may go nowhere anytime soon

Brian Sozzi
Editor-at-Large

They still need to make money, right?

Mighty ride-hailing giant Uber (UBER) showed several promising metrics to investors when it revealed its first earnings report as a public company Thursday evening. Strong growth in gross bookings, trips and monthly platform users certainly whet the appetite of the Uber bulls and those wanting to get into shares of the newly public company.

Uber Eats gross bookings surged 108% to boot.

Uber CEO Dara Khosrowshahi — a veteran executive — also put on a master class for how fresh public companies making no money should hold an earnings call with nosy Wall Street analysts. That is, promise strong growth in key metrics and continue to hype the future of the business.

Indeed the hype was flowing on the call.

“We have a generational and demographic wave behind us and our job is to grow fast, at scale and more efficiently for a long, long time,” Khosrowshahi said.

Uber’s stock rose slightly on Friday to $40 a share.

Having said that, there is still one glaring problem with Uber — it lost a ton of money again in the first quarter. And that begs the question on whether Uber’s stock — which is still trading below the $45 initial public offering price — could work meaningfully higher amidst what looks to be years of massive losses ahead.

What Uber showed the world

First, the messy.

Uber posted an adjusted loss of $2.26 a share on adjusted revenue of $2.76 billion in the first quarter. On a net basis, Uber’s losses widened to over $1 billion in the quarter, up from a loss of $478 million in 2018.

Estimize CEO Leigh Drogen told Yahoo Finance investors should ignore Uber’s big quarterly loss as the company’s future promise is clear. Yours truly isn’t so sure investors should ignore $1 billion in losses with more losses likely on the way. The losses are a reminder that Uber’s business model remains unproven in its ability to consistently produce profits.

But to Drogen’s point, the growth behind Uber’s closely watched metrics was impressive.

  • Core gross bookings up 43%.

  • Trips up 36%.

  • Ride-sharing revenue up 9%.

  • Uber Eats revenue up 89%.

  • “Other bets” revenue — comprised mostly of freight and scooters — surged 263%.

Traders work after the opening bell during the IPO of the ride sharing company Uber, at the New York Stock Exchange (NYSE) on May 10, 2019, in New York. (Photo by Johannes EISELE / AFP) (Photo credit should read JOHANNES EISELE/AFP/Getty Images)

With $5.7 billion of cash on hand and Khosrowshahi’s mention on the conference call that the ride-hailing market’s pricing (thanks, Lyft (LYFT)...) has become “rationale”, there is a more respectable short-term bull case on the stock today than, say, two weeks ago.

Not a convincing near-term bull case, however.

When will profits become a reality

Asking an investor to ignore a steady drumbeat of losses for Uber and buy, buy, buy the stock is a tall order. And make no mistake, the annual losses could be striking for Uber.

Resident Uber whisperer Dan Ives at Wedbush Securities sees the company losing $4.2 billion on a net basis this year (Wall Street consensus: $4.4 billion loss) and another $3.9 billion in 2020 (Wall Street consensus: $3.5 billion loss).

“The losses have been part of the problem for the stock,” Ives said on Yahoo Finance’s The First Trade.

“With profitability not in sight for the next three to four years, that will be the line in the sand for investors. They [Uber] have to flawlessly execute with no speed bumps really over the next few quarters for investors to get comfortable with the stock,” adds Ives. “But no doubt, this is going to be a stock that will be range-bound near-term until they could prove otherwise.”

Ives is on the mark here.

All in all, nice first earnings report, Uber. Now, give investors (and potential ones just waiting to get in on you being the next Amazon) what they really want: a wink and nod as to when profits will become reality.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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