Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Yesterday Uber reported its Q4 2019 financial performance. Today, following the news, shares of the ride-hailing giant are up over 9%, pushing Uber’s stock above $40 per share. While Uber’s shares are still under its $45-per-share IPO price, the company’s earnings report appears to indicate that there may be an end in sight for Uber’s infamous losses.
After promising to reach adjusted profitability in 2021, Uber made a better pledge yesterday to generate a loose form of profit in Q4 2020, earlier than it or investors previously anticipated.
This morning, we’re going to quickly skim Uber’s results, unpack the profitability promise to understand if what the company promised today is impressive or not and wrap with a note on cash burn and more traditional profit definitions to frame the news.
If Uber has turned the corner on profitability, the halo effect from the good news could prove a boon to other on-demand companies, especially the private cohort who are struggling to combat a narrative that when it comes to making money, they are all forecast and no follow-through.
Results
Uber’s Q4 results were as follows: Revenue of $4.069 billion (up 37% compared to the year-ago quarter), against a $4.06 billion market expectation. The company’s loss per share, inclusive of all costs (GAAP), came to $0.64 in the quarter, above an analyst average of $0.68 in per-share losses.
Uber beat on revenue and profitability then, compared to what investors anticipated. Drilling in, here’s the rest of what you need to know from the company’s Q4 2019:
- Gross bookings growth of 28% to $18.131 billion, from $14.169 billion in the year-ago period.
- Adjusted net revenue of $3.730 billion, up 41% compared to Q4 2018.
- Adjusted EBITDA of -$615 million, an improvement on a -$817 million loss using similar methods in the year-ago quarter.
- Net losses of $1.096 billion, worse than its year-ago result of -$887 million.
- Uber’s trailing 2019 operating cash flow worsened from -$2.522 billion at the end of Q3 2019 to -$4.321 billion at the end of Q4 2019.
I apologize for the sheaf of numbers, but Uber’s earnings reports are notoriously complex and you can’t get a handle on them without a good set of figures. I think the above are effectively our minimum viable set of metrics. Recall that Uber’s results were heralded by the market, sending its shares up nearly 10% as of the time of writing.
With its broader context in hand, let’s discuss the company’s new and past profitability claims to understand if what the company is promising is ambitious or laudable.
Profits?
Rewinding the clock to Uber’s Q3 2019 results, the company said that it would “generate full-year adjusted EBITDA in 2021,” meaning that over the full four quarters of 2021 its aggregate adjusted EBITDA result would be greater than zero. That claim was made around the same time that Lyft promised to reach adjusted EBITDA profitability by Q4 2021.
This week, however, Uber said that it expects to reach adjusted EBITDA profitability by Q4 2020. This does not mean that Uber will consistently generate adjusted profit in the future; companies often report varying profitability. However, it’s obvious that it will be easier for Uber to generate adjusted profit in 2021 if the firm closes 2020 already in the (adjusted) black.
As Uber had only promised full-year 2021 adjusted EBITDA positivity, I suspect that many folks expected the company to report adjusted losses early in 2021 that would be offset by later quarters’ results. Now, the company could start 2021 on an adjusted profit footing.
The company is still quite optimistic. Here’s Uber’s CEO on its earnings call yesterday (Bolding: TechCrunch):
We improved totally — quarterly adjusted EBITDA by over $200 million year-over-year or by 14 percentage points, as a percentage of adjusted net revenue. In 2020, we expect to see adjusted EBITDA losses to continue to decline. To me, these results are a validation of the strategy we set in 2019. We’ll continue to relentlessly execute our plans for each of our businesses in 2020. […]
Our progress in 2019 and our 2020 plans gives me the confidence to challenge our teams to accelerate our EBITDA profitability target from full-year 2021 to Q4 2020. […] Further, long term, we remain confident about achieving our overall company-adjusted EBITDA margin of 25%. Specifically, we expect Rides to deliver adjusted EBITDA margin of 45% with a 25% take rate, and our Eats business to deliver adjusted EBITDA margin of 30% with a 15% take rate.
For Uber bulls, this is all quite welcome. The less optimistic will likely point out that Uber’s aggregate adjusted EBITDA worsened in 2019 compared to 2018, falling from -$1.847 billion to -$2.725 billion. Over the same period, the company’s net loss also worsened from a positive result of $997 million in 2018 (due to a divestiture), to -$8.506 billion in 2019 (due in part to one-time IPO costs).
Through all that mist, Uber sees sharply improving adjusted EBITDA results leading to a positive result in the final quarter of this year.
Given what Uber reported in 2019 Q4, the promise will require improving its Q4 result by $615 million in adjusted EBITDA. Returning to our initial question of whether Uber’s promise to reach EBITDA positivity in Q4 2020 is impressive, the answer appears to be yes. It would require Uber dramatically improving not only its results, but the pace at which it has improved them; Uber only shaved $200 million off its adjusted EBITDA losses in Q4 2019, less than a third of the improvement it needs to execute for Q4 2020.
That’s more than a tripling.
So, it’s all good for Uber?
No. Even if Uber does manage to generate a dollar of adjusted EBITDA in Q4 2020, it will likely still post stiff net losses and consume cash. The company won’t be out of the woods. However, if it does meet its new promise, investors will likely be willing to give it ample time to figure out how to reach real profitability (Uber has lots of cash, remember, so it’s not under short-term pressure to stop burning cash in accounting terms).
And we’d be remiss to not note that Uber is managing its improvements as the U.S. and global economies continue to expand. What would happen to Uber’s promises if the global or domestic economy slipped isn’t clear, but it wouldn’t help. So, if everything holds, the company could reach adjusted profitability over a decade after its birth. It will take more time for it to generate profit inclusive of all costs, but, hey, half an apple is better than no fruit at all.