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When Will Uber Ever Make Money?

David Borun

Shares of ride-sharing giant Uber Technologies (UBER) slipped to new lows on Tuesday after yet another disappointing quarterly report and few signs of a reliable plan to produce GAAP profits. Uber now trades 37% below the $45/share price of its initial public offering in May.


The company has now lost more than $20 billion in market capitalization and investors fear that another shoe is about to drop as the lockup period during which insiders are prohibited from selling their shares in public markets is set to expire on Wednesday. In all, more than 90% of the public float will be available for sale - and many of those early investors paid far less than the IPO price.


During the quarter, Uber lost a staggering $1.1 billion, bringing losses in 2019 to roughly $3 billion. The losses are particularly troubling for investors because revenues increased 29% over the year-ago quarter, yet Uber continues to find ways to spend money faster than they can make it.
In 2018, Uber lost $1.8 billion on just over $11 billion in revenue.


Management now targets 2021 as the point at which they might be profitable on an EBITDA basis. Q3 earnings before interest, taxes, depreciation and amortization were a loss of $585 million.


Two newer Uber divisions showed promising results. Uber Eats grew revenues by 64% and Freight grew by 78%.  “Other bets” like scooters and electric bike rentals also showed strong gains, but remain a tiny fraction of overall revenues.


Freight and food delivery were natural extensions of Uber’s core rides business. If drivers are on the road, there’s no reason that they shouldn’t use time that would otherwise be wasted to deliver food and packages.


It’s clear however that competition across all of Uber’s businesses is stiff. They established first-mover advantage in the rideshare space, becoming a name brand almost overnight. That advantage was crucial because the rideshare market has few barriers to entry. Competitor Lyft (LYFT) has also made significant progress in attracting customers, but other rideshare companies listed in Uber’s S-1 as competition – like OLA, Careem, Didi and Taxify have mostly failed to establish much of a national presence.


It’s a different story in the food delivery business, with stiff competition from Doordash, GrubHub, Postmates and even Amazon (AMZN) keeping consumer prices low.


(Editor note: When I first heard about Uber 6 years ago, like many potential consumers and investors, I was highly skeptical that the idea would catch on. Once I had the app on my phone however, I was immediately impressed by the speed, convenience and affordability of their service. I was also intrigued by the flexible pricing model as a unique economic experiment in free-market pricing. Rates that fluctuate with demand delivered on the promise of supply that changes efficiently during periods of varying consumer needs.


In the two big cities where I travel most – Chicago and Los Angeles – I can routinely travel across town in an Uber for less than ten bucks. I would almost certainly pay more, but those competitive forces keep prices almost absurdly low.)


Investors sometimes confuse a company that has a popular and innovative product or service with a good investment opportunity and Uber investors so far seem to have made that mistake. All the brand recognition – and revenue – in the world doesn’t matter much if a company has no clear path to actual profitability.


Uber has done an astonishing job of growing from a tiny start-up to a household name in just a decade, but for the time being, there are a lot of stocks that have similarly impressive revenue growth and still find a way to make money even as they expand.

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