Uber Releases Ugly 3Q 2018 Results: Losses Widen to $1.1 Billion, Growth Slows

From Hubert Horan:

3q P&Ls released tonight. Losses and margins got worse. Gross revenue growth continues to slow down, showing their inability to fix the fundamental weakness in the core car service business.

Expenditures on the marginal business (food delivery, scooters) that are key to the longer term growth narrative drag results down further.

Mainstream media coverage hasn’t reached “The Emperor has no clothes” point yet, but stories are raising explicit doubts about the viability of next year’s IPO.

Actually, as we’ll discuss, there are Uber skeptics, just not necessarily among reporters.

First, from Eric Newcomer at Bloomberg, who shows doubts about Uber’s proposed IPO valuation of $100 billion and its oft-made claims that it’s another Amazon:

Uber’s sales are dramatically slowing even as the ride-hailing company is spending more to fuel global growth, particularly in its food delivery business. Revenue growth of 38 percent in the third quarter was almost half of what the growth rate was six months earlier, when the company was negotiating a $9.3 billion investment led by SoftBank Group Corp.

That’s a troubling sign for a serially unprofitable business that hopes to get valued like a technology company in a planned initial public offering next year. Uber Technologies Inc. lost $1.07 billion in the quarter ended Sept. 30, an improvement over a year ago, but the loss widened 20 percent from the second quarter.

Highly valued companies typically grow quickly or generate big profits — and great ones do both. In the fourth quarter of 2005, Amazon.com Inc. had about the same revenue as Uber’s today — just under $3 billion, not adjusted for inflation. Yet, Amazon earned $199 million in profit and was worth about a fourth of Uber’s $76 billion valuation.

TechCrunch was more credulous, and also touted a more flattering profit metric:

Uber, which is expected to go public sometime next year, just released its Q3 2018 financial results. Uber’s net losses increased 32 percent quarter over quarter to $939 million on a pro forma basis, though Uber expected these losses as it continues to invest in future growth areas.

On an earnings before interest, taxes, depreciation and amortization basis (EBIDTA), Uber’s losses were $527 million, up about 21 percent quarter over quarter. And as Uber prepares to go public, the company has started presenting the income statements with stock-based compensation.

Ten years from now, Uber CEO Dara Khosrowshahi envisions its core ride-hailing business accounting for less than 50 percent of Uber’s overall business, Khosrowshahi told me at TechCrunch Disrupt SF 2018. That means Uber expects businesses like Eats, scooters, bikes and freight to contribute to be more of Uber’s business, which requires Uber to invest heavily in those businesses.

And why should we expect UberEats and scooters to become profitable? Just because Uber wants it to be so?

The New York Tines’ story came off like a string of Uber talking points, with the only apparent real cause for pause that Lyft is also planning its IPO for 2019. For instance:

Uber’s I.P.O. is likely to create an enormous financial bonanza for its many investors and shareholders, including the company’s co-founder, Travis Kalanick, as well as venture capital firm Benchmark and the Japanese conglomerate SoftBank.

To get ready for a public offering, Mr. Khosrowshahi has been trimming Uber’s money-losing businesses. Uber has withdrawn from markets including Southeast Asia and Russia, where it faced stiff competition and was spending a lot of money. It has focused on other areas, like food delivery, as well as other geographies that show more potential for growth. On Wednesday, Uber began a loyalty program that will give riders access to extra perks the more frequently they use Uber services.

Uber said Uber Eats, its food delivery business that started in 2015, was growing rapidly, with bookings through its separate app up 150 percent from last year.

Yet Uber’s spending also continues to rise. The company said its total costs and expenses were $3.7 billion in the third quarter, up from $3.5 billion in the prior quarter.

It would be more accurate to say that Uber is cutting some loss-generating operations while expanding others.

Finally, to the Wall Street Journal:

The results for the three months ending in September show that Uber is still growing quickly but is likely to be unprofitable for some time. In documents for a bond offering last month, Uber said it expected it wouldn’t reach a profit for at least three years.

Uber has turned its attention to providing customers with a host of transportation options in addition to its core ride-hailing service. Mr. Khosrowshahi said he is particularly hopeful about electric-scooters and bicycle rentals, which he has said can be a low-cost replacement for short car trips in urban centers.

“What we’re going after is essentially to debundle car ownership,” Mr. Khosrowshahi said in an interview at The Wall Street Journal’s WSJ Tech D.Live conference Tuesday. “A world in which the people who cannot afford to buy a car have access to consistent mobility wherever they are, that’s a better world.”

Of the 22 comments on the story so far, only one read as positive, and other readers dismissed it as bad sarcasm. And remember that WSJ readers viciously attacked the initial stories on the Theranos fraud, accusing the journalists of being jealous of a talented entrepreneur. A sampling:

charles cotton

I’ve been tracking Uber and its copy cat, Lyft since 2013. The underlying root of their both their problems is that there business platform is toxic and can not ever make a profit. The burn rate is over 90% of investors money which has resulted in a meltdown. Outside investors have dried up and quite frankly dismayed. Such investors were all reckless, naive, and greedy being lured by hyped, false financials and advertising.

The promise of “get in quick, we’re going public'” being the worm on the hook. There were no accurate disclosures or prospectus given to the investor…. No one really knows what is going on at Uber.”

Joseph Swartz

Uber may be the biggest con game the Street has seen in decades…..an IPO of a Company that loses billions of dollars, subsidizes every ride we take, and has gone off the path with Uber Eats, a ridiculous venture. I recently read it’s drivers last about 6 months, on average, before quitting.

Uber has no plan to make money – it would have to raise fares 2 to 3 times to become profitable – how long will investors continue to subsidize a Company that promises to make it up in volume.

Gary Ayer

Uber is raising money via a public offering because otherwise they would go out of business due to continuous losses.

Jef Kurfess

Doing a thriving business selling dollar bills for $.85?

So Uber’s PR machine is having less and less success in keeping its story going. But will polite press amplification be enough to save Uber’s bacon.

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34 comments

  1. Ignacio

    In Spain Uber has no chance to become a monopoly, the only situation that would make the business profitable. Uber faces competition -and anger- from traditional taxis as well as another company, Cabify, with slighly different business model that is doing far better than Uber.

    Reply
  2. scott 2

    I needed a ride from Burbank to LAX on a Thursday morning around 5:45 AM. I requested a car the night before. At pickup time there wasn’t a Lyft or Uber within 20 miles. When I did get one the driver said that at the rate they are being paid it wasn’t worth getting out of bed early anymore.

    Reply
    1. Alex Cox

      Next time you’re in The Valley try United Cab.

      It’s a regular cab company; I had business there earlier this year and used them several times. After my third trip they recognised my phone number and knew my name. Generally the cab showed up within 5-10 minutes.

      On the one occasion when they didn’t have a cab nearby – 5pm on a Friday afternoon – they passed the job on to another cab company, Yellow.

      Yes, they cost more than Uber. But they’re professional drivers and I have no complaints at all.

      Reply
  3. cnchal

    > But will polite press amplification be enough to save Uber’s bacon.

    bacon = dumb money

    One revelation is that Dara Khosrowshahi is a great straight faced comedian.

    . . . he is particularly hopeful about electric-scooters and bicycle rentals, which he has said can be a low-cost replacement for short car trips in urban centers.

    Where can one buy “hospital emergency room billing atrocities” futures? That would be smart money.

    > It would be more accurate to say that Uber is cutting some loss-generating operations while expanding others.

    Hmmm. Yves, do mean expanding other “loss-generating operations”?

    Another year and another Nimitz unit down the drain.

    Reply
  4. Louis Fyne

    Uber’s/Lyft’s drivers are its “suppliers” but Uber/Lyft HQ is doing everything it can do squeeze every penny from drivers, hence increasing turnover, increasing new driver acquisition costs, souring customers.

    Uber (and Lyft) will never be profitable under the current pricing system. But both are deathly afraid to raise prices as then riders would defect to cabs, public transit, personal cars. So drivers are being squeezed for every penny.

    Uber has a new two-tiered “surge” pricing system. For Drivers: Under the old system a driver received as revenue 75% of a total fare. Under the new system, drivers get paid solely on fixed mileage rate + fixed time rate + a linear fixed dollar bonus, if any (this replaces any “surge”).

    For riders: Uber still increases fares by a variable multiplier (as demand warrants).

    Old System: $20 fare, $1.50 Uber + booking fee, rest driver.
    New System: $20 fare, commission anywhere from 25% to 50% for Uber, driver gets paid fixed rate.

    result is a net pay cut for drivers. Uber is literally surviving on the using the uncompensated depreciation of its driver’s cars.

    yes, Uber’s fare-pay structure for drivers is obfuscating. That’s a feature, not a bug.

    Reply
    1. Skip Intro

      They have found a way to get blood from a stone, as it were, by extracting value from the last bits of equity held by the sinking precariat: their cars. Those too dumb or desperate to calculate their losses with every ride are preyed upon until they are exhausted. I spoke with a Lyft driver who said he lost money with every ride. He had a PhD in statistics and was between jobs, but the gig gave him the margin to take his time finding the right job.

      Reply
      1. Bobby Gladd

        “Lose a little on every sale, make it up in volume.”

        The entire idea is preposterous. I absolutely love all of the Horan reporting on this scam.

        Reply
        1. jrs

          Well then it’s like a home equity loan or maybe a negative equity loan on a home, your net worth does decrease, but it gives you money to live off of in the meantime. Or it’s like taking money out of savings to live, your poorer but bills get paid for the meantime.

          Only thing is if you spend down your savings you have no savings. If you pull from your house you could end up homeless eventually if the mortgage and HELOCs increase beyond affordability and finances don’t change. And if you pull from your car sooner or later, no car = no work for you ever even if you found a a great full time position, because how are you going to get there without a car? In a few places it’s possible, in most it’s not.

          Reply
    2. lakecabs

      They showed 6% growth. If they raised prices would most likely show negative growth.

      Negative growth is the kiss of death.

      Ubereats numbers are based on the total take. Restaurant and ride figured in to Uber’s figures.

      Reply
  5. Larry

    At this stage it only matters if Uber can ipo at an acceptable price to let all the early and late arrives finally cash out. Given how ridiculous the valuation of Tesla and some other players are, I’d say this won’t be an issue. Fairy tales and e-scooters to the rescue!

    Reply
    1. voteforno6

      Yeah, but they’re still required to disclose certain things prior to an IPO, beyond what they have already. So, in theory people should be able to get a good picture of their financial health prior to that offering, which, given what we know already, should be a concern for anyone thinking of buying into Uber. Either that, or we’re in line for a massive case of securities fraud. In the Age of Trump, I think that either one is possible.

      Reply
  6. rob

    I wonder how this business model ever got off the ground. I’m sure the people starting this company up weren’t the first to figure how much money they could make by just sidestepping the current rules and regulations and opening for business anyway. After all, in most things that are regulated like the livery game, all over, “entrepreneurs” who don’t follow rules are considered crooks and criminals. First they are fined ,then their property is confiscated,finally there would be criminal charges.
    So all uber is is an international interloper , who somehow managed to bribe the powers that be all over , that they and their beasts who actually shoulder the burden of owning,driving and maintaining a vehicle and a phone, seem to be immune from “the law”. so to speak.
    Seems like a con game. a racket. until it goes bust. and the law of gravity is renewed.

    Reply
    1. lakecabs

      Uber didn’t start with this business model. They started out as an app for cab companies.

      It didn’t work so they cooked up another scheme. This scheme is not working so now they want scooters and bikes and pizza delivery.

      They could have bought every cab company in the US for less than 3 billion. They have spent 10’s of billions anddon’t have half of it.

      Reply
    2. Fiery Hunt

      But you answered your own question…

      I wonder how this business model ever got off the ground.
      So all uber is is an international interloper , who somehow managed to bribe the powers that
      be all over

      Corruption is the pervasive rot that underpins everything.

      Reply
  7. Summer

    “A world in which the people who cannot afford to buy a car have access to consistent mobility wherever they are, that’s a better world.”

    There’s that word: access.

    You know what I always say to neolibs and their damm “access”?

    I have “access” to the lotto, too. That’s not going to work out.

    Reply
    1. tegnost

      yeah after you lose your car that you were using to get by as an uber we’ll make your world better by giving you a ride, that is if you can afford the cell phone plan…no app, no ride

      Reply
  8. Summer

    More on “access”:

    Whenever you hear the word, it’s an autmatic indication of a middle-man or rentier.
    If you only have “access,” there is someone or something between you and the product or service. Access = Gatekeeper/rentier.

    What a nightmare.

    Reply
  9. Summer

    Uber’s I.P.O. is likely to create an enormous financial bonanza for its many investors and shareholders, including the company’s co-founder, Travis…

    Pryamid…just sayin’.

    Reply
  10. tegnost

    lawsuit futures, never seen a helmet on those scooters and bikes
    Mr. Khosrowshahi said he is particularly hopeful about electric-scooters and bicycle rentals, which he has said can be a low-cost replacement for short car trips in urban centers.

    Reply
    1. PlutoniumKun

      Bike share schemes have been around for years without helmets. There is zero evidence that requiring helmets would improve safety on those bikes, which tend to be heavy and stable.

      That of course doesn’t preclude the possibility of a Jury deciding otherwise.

      Reply
      1. Anon

        But there is evidence that if you fall off your bike and hit your head a helmet will provide cranial protection. (BTDT).

        Providing clear evidence on bicycle crash injury is not as easily obtained as it is with automobile crashes, where seat belts, air bags, anti-lock brakes are proven safety appliances. A bicycle crash may have several sources: inattention, other riders, reckless cars, poor road conditions, etc. . And bicycle collisions with automobiles rarely receive the same reporting detail to US Fed. Highway Administration that auto collisions do. Much is unknown.

        However, helmets are only for those who think they have a head worth saving. The danger is real, especially for the novice. That’s why they are mandatory for ages 16 and under in California.

        As for Jury deciding otherwise, that is why most cities require scooter renters to wear helmets. A deep-pocket municipality doesn’t want open ended liability for small-wheeled, probably novice, scooter riders traveling on bike lane surfaces that are more appropriate for large-wheeled vehicles. (A recent California jury awarded $1.5 M to a bike lane user for injury said to be caused by roadway disrepair.)

        Reply
      2. tegnost

        helmet use…
        https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2598379/
        FTA…the review authors’ caution that it is possible that interventions to promote cycle helmet wearing may reduce cycling, with negative health effects.
        This is the main argument against helmet use.
        As I was looking around I noticed a couple of camps, legislative, non legislative helmet requirements. The main against helmets was it would reduce cycling which has other bad effects, but the above study states fewer head injuries with helmets. And this isn’t a person with a bike, it’s a company renting a bike…my main issue is the scooters though. I’ve been hit twice cycling, my main riding partner 5 times, twice he woke up in the hospital, another friend died when his unhelmeted head hit the differential on a chevy van. And from personal experience I can tell you that in the us the insurance co.s will try to starve you out with delays and restrict your care as much as they can with extensions to trial long before you get anywhere near a jury. Juries are made up of peers and lots of peers hate bikes, the only path to a payout in these cases is permanent disability. And you don’t want that. No amount of money is worth that. So like the firefighters said to me as they were scraping me up off the street, thanks for wearing a helmet.

        Reply
  11. Lou Mannheim

    FWIW, Uber Eats suuuuuucks.

    I tried them once, they only deliver to the curb here, and the driver got lost. I guess they think their brand name will help in a heavily crowded market but I wouldn’t bet the ranch on that.

    Reply
  12. Tony_L

    “A world in which the people who cannot afford to buy a car have access to consistent mobility wherever they are, that’s a better world.”

    Really, the only shocking part in this excellent post is that Silicon Valley Execs still think they can use the “We’re Building a Better World”™ schtick. Hasn’t that phrase been sufficiently parodied in popular TV shows?

    Ten years hence: 50% of their original business + 50% Kozmo.com & scooter rentals.

    Well, when the US Federal Reserve turned on the hoses ten years ago all that money had to go somewhere.

    Reply
    1. Michael Fiorillo

      Kozmo.com? And a flood of nostalgia ensues…

      Ah yes: Proust had his madeleines, and connoisseurs of finance/tech manias have Kozmo, com.

      Cheers!

      Reply
  13. wilroncanada

    British Columbia has been very careful, so far, not allowing Uber/Lyft into the province. The government is trying to develop a set of rules which will specifically NOT destroy the taxi industry. The launch is supposedly going to be in about the second quarter 2019. This, in spite of some highly publicized incidents of taxi drivers refusing to take certain passengers from downtown Vancouver is the wee hours of the morning to exurban destinations. The stories are seemingly not followed up on, but become clarion calls by the Liberal opposition and most of the (remaining) urban newspapers for immediate “relief from the tyranny of taxis” by the wholesale lawless advent of “ride share.”
    Given the demands of any new regulations plus the financial reality of Uber, they may never arrive. Of course, they could provide free cars to thousands of the homeless men and women in the province for a percentage of the take on “ride share” but most are physically disabled, mentally ill, developmentally delayed, or have records. Worst of all, a large number are from that skin tone of whom we must not speak…first nations./s

    Reply
  14. Malcolm Crout

    Some hare brained bureaucrat in Canberra (Australia) permitted Uber Eats to deliver food via drones in a prescribed area. The locals are pissed off about these whining toys flying around the joint to the point where residents are threatening to shoot the things out of the air with bean bags.
    I get the ride business albeit the model seems to be floundering as reality catches up with the hype, but for the life of me, I don’t now how permissions for these invasive contraptions get traction when private uses are restricted to open areas with severe penalties for flying near built up areas. Like the idea that Amazon will be doing similar with their small package deliveries – wtf? Consumers should refuse to sign for receipt or kick the thing off their doorstep.

    Is it regulatory capture by these carpet baggers or am I missing something? All I hear is convenience, but convenience for whom?

    Reply
  15. Peter VE

    They just started the JUMP E Bike here in Providence. Since you have to prepay the first $2.00 fee to activate the app, they have a several month float on my $2. It’ll be a short leap from Step 1) my $2; Step 2) ??????; Step 3) Profit!
    Based on the amount of usage I have seen, there may actually be a business case for Ebikes in hilly cities like Providence. I would guess that an average bike gets used 5 times a day or so. Of course, we’re about to go through the winter, when few bikes will be used for 3-4 months. They’re paying $16 – $22/hr for the maintenance techs and drivers for recharging & relocating the bikes, so when you’ve had enough as an Uber driver, you can get a realish job.
    It won’t save Uber, but the original owner might be able to buy it back out of bankruptcy for pennies on the Uber dollar.

    Reply
  16. David Thomas

    Thank you for such a great series.
    It must be said that MSM are being complicit in hiding the truth about Uber financials. Certainly the Murdoch media generally only report positive news re Uber which is understandable when Murdoch is an initial investor in Uber.
    Whilst the financials are all revealing there has to be more to the story that cannot be revealed or known & confirmed.
    Bribery & corruption? Media & govt involvement.
    A post mortem revealing the human costs in the $trillions with suicides, bankruptcies etc & the social costs in welfare, congestion, pollution, lost taxes etc
    Ubers only saviour will be an IPO but it will still go bankrupt. The IPO will save it from being blown apart, stop execs from being charged & Uber being revealed as a Ponzi, which it is.

    Reply
  17. David Thomas

    Lime scooters has just launched here in Brisbane, Australia. Lime has Uber as a backer ie incestually linked & no doubt will move under the Uber umbrella before going broke. Such a move will no doubt add more fictitious value to Uber.

    Exact same Uber playbook using bully boy tactics accusing those resisting Lime’s entry as being ‘nanny state’ and not being up with technology. And our media & politicians are excited about Lime that one really needs to question what incentives were they given.

    Cannot imagine how they will survive in our sub tropical climate where a docked bikes offering over many years has very meagre support.

    Ubereats has also had bad press & TV coverage with delivery drivers videod helping themselves to customers food. I guess when incomes are way below a living wage these poor creatures, like us, have to eat.

    Reply

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