Despite the easing of US price war, Uber Technologies Inc. (UBER.N) reported a loss of $5.2 billion on top of missed Wall Street targets, with stock decreasing by 6% last Thursday.
Investors are taken off guard by the company’s report, as a major competitor has raised its revenue expectations and reported an easing price war in the ride-hailing industry.
Haris Anwar, an analyst on financial markets platform Investing.com, weighs in. “Losses are widening and the competition is cut-throat,” he says.
Last year, Uber lost $878 million. On the second quarter of this year, Uber’s losses include $3.9 billion worth of stock-based compensation expenses, with a $300 million cost for driver appreciation.
This has investors questioning Uber’s future expansion, if any at all, and their ability to fend off competitors.
“What’s sapping investor confidence and hitting its stock hard after this report is the absence of a clear path to grow revenue and cut costs,” Anwar explains.
The IBES data shows that Uber’s revenue growth is slowing down. For a $3.36 billion average analyst estimate, the company only made $3.2 billion.
Ride-hailing, which is Uber’s main line of business, only had 2% of revenue growth with $2.3 billion. On the other hand, their food delivery service Uber Eats had an increase of 72% to $595 million.
Uber’s gross bookings, including all bookings for car rides, food deliveries, bicycle trips, and other services, had a 31% increase from last year to $15.76 billion. Analysts were expecting an average of $15.80 billion.
Additionally, Uber’s cut on the cost of a booking decreased. Fare increased by 20% but Uber only keeps 4% of that sum.
After the company’s report, Uber’s shares dropped by 6% after having an 8% increase during the day. Meanwhile, Lyft’s shares dropped nearly 2% after gaining 3% beforehand.
Uber CEO Dara Khosrowshahi says that the industry and competition are starting to rationalize and has been continuously improving since quarter one of this year.
Lyft, one of Uber’s main competitors, said that they should cut back on promotion and incentive expenses due to the easing price war. Their revenue expectations also increased for the following years.
Uber’s losses could mean a turnaround in 2020
Uber’s costs jumped to $8.65 billion this quarter, almost 147%, with a big chunk of the expenses geared towards research and development. This means that in time, the company may expand into other areas of service.
Uber and Lyft used to rely on subsidization to attract customers while having increased expenses into research and development. “While we will continue to invest aggressively in growth, we also want it to be healthy growth, and this quarter we made good progress in that direction,” Uber’s CFO Nelson Chai says.
That makes this the best time to invest since losses would decrease in 2020 and 2021, says Khosrowshahi.
The internal adjustments causing the losses today could mean a significant rise in revenue in the future when Uber expands its services and continues to grow its customer base.
Before interest, tax, and stock-based compensation, the adjusted loss for Uber is $656 million, topping Wall Street targets of a $996 million loss. The company says this is better than they had expected.
Total bookings for the year would be $65-67 billion, Uber added, aligned with the $65.9 million target of Wall Street.
Uber is convincing investors that revenue will grow from different income streams (ride-hailing, logistics, food delivery), despite the company not yet sure if it will make a profit this year.
Additionally, Uber reports that the app’s monthly active users are now at 99 million, globally–a big leap from 93 million last quarter and 76 million in 2018.