Uber has made getting from A to B a simple matter for its customers. An affordable taxi ride is no further away than a tap on a smartphone screen. Investors in the firm, which floated on the stockmarket in May, are strapping in for a more tumultuous and uncertain journey—the one to profitability. Uber’s latest quarterly results, published on August 8th, show that their desired destination is still a long way off. A quarterly loss of $5.2bn is impressively vast even by the standards of a company whose business model is based on spending heavily to keep rivals in the rearview mirror. After it was announced, Uber’s shares dropped by almost 8%.
From its inception Uber has now lost a cumulative $14bn. In the most recent three months the firm recorded a large one-off expense related to share-based compensation for workers after the initial public offering. However, even the company’s preferred measure of profits, “adjusted-EBITDA” showed a loss of $656m, better than the first quarter of the year but worse than the same period a year earlier. And the rapid growth that the losses are intended to sustain seems to be faltering.
Uber’s efforts are directed at becoming the “Amazon of transportation”, in the words of Dara Khosrowshahi, the company’s boss. It wants not only to dominate ride hailing, where it operates, but is moving into food delivery, “micro-mobility” through electric bike and scooter hire and even platforms that co-ordinate private and public transport for seamless citywide travel.
Uber relies on rapid growth to keep investors happy. And though gross receipts from providing rides grew by nearly a third in the quarter compared with a year ago, the cash that is passed on to Uber after drivers take their cut grew by just 14%, the lowest ever for any three-month period, as competition for passengers holds down fares.
Nerves at Uber’s headquarters in San Francisco will tighten after results released earlier in the week by Lyft. Revenues at Uber’s main rival in America jumped by 72% in the quarter as it eats into Uber’s market share—it claims 28% of the American ride-hailing industry compared with Uber’s 70% of the pot. Investors prepared to tolerate losses until Uber establishes a dominant market position in ride hailing may, like a hopeful passenger on a busy weekend night, have a long wait. Despite assurances from both firms that competition between the two is easing a little, fares will remain low and losses will continue to mount while it remains so intense.
And Uber will keep spending. Nelson Chai, the firm’s financial chief, said “we will continue to invest aggressively in growth, we also want it to be healthy growth.” That seems to include ferrying more takeaway meals and other goods from local shops and firms using its 4m drivers around the world. Revenues will rise as a result but making greater inroads into such a highly competitive businesses will mean that margins are thin. Uber is still investing big sums in developing autonomous vehicles. But the hype around autonomous cars has faded as the reality of the technical, legal and bureaucratic challenges becomes clearer. It will be years if not decades before self-driving cars are ubiquitous and eliminating the driver brings bumper returns.
The question for shareholders is whether it is worth backing a firm splurging vast sums if growth continues to dwindle. Those that regard mounting losses as an indicator of future riches will stay for the ride. Uber must hope that they outweigh the numbers ready to press the “cancel trip” button.
This post was originally posted at https://www.economist.com/business/2019/08/09/uber-lost-over-5bn-in-the-second-quarter.