Uber and Lyft lost a lot of money in 2020. That’s not a surprise, as COVID-19 caused many ride-hailing markets to freeze, limiting demand for folks moving around. To combat the declines in their traditional businesses, Uber continued its push into consumer delivery, while Lyft announced a push into business-to-business logistics.
But the decline in demand harmed both companies. We can see that in their full-year numbers. Uber’s revenue fell from $13 billion in 2019 to $11.1 billion in 2020. Lyft’s fell from $3.6 billion in 2019 to a far-smaller $2.4 billion in 2020.
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But Uber and Lyft are excited that they will reach adjusted profitability, measured as earnings before interest, taxes, depreciation, amortization and even more stuff stripped out, by the fourth quarter of this year.
Ride-hailing profits have long felt similar to self-driving revenues: just a bit over the horizon. But after the year from hell, Uber and Lyft are pretty damn certain that their highly adjusted profit dreams are going to come through.
This morning, let’s unpack their latest numbers to see if what the two companies are dangling in front of investors is worth desiring. Along the way we’ll talk BS metrics and how firing a lot of people can cut your cost base.
Uber
Using normal accounting rules, Uber lost $6.77 billion in 2020, an improvement from its 2019 loss of $8.51 billion. However, if you lean on Uber’s definition of adjusted EBITDA, its 2019 and 2020 losses fall to $2.73 billion and $2.53 billion, respectively.
So what is this magic wand Uber is waving to make billions of dollars worth of red ink go away? Let’s hear from the company itself:
We define Adjusted EBITDA as net income (loss), excluding (i) income (loss) from discontinued operations, net of income taxes, (ii) net income (loss) attributable to non-controlling interests, net of tax, (iii) provision for (benefit from) income taxes, (iv) income (loss) from equity method investments, (v) interest expense, (vi) other income (expense), net, (vii) depreciation and amortization, (viii) stock-based compensation expense, (ix) certain legal, tax, and regulatory reserve changes and settlements, (x) goodwill and asset impairments/loss on sale of assets, (xi) acquisition and financing related expenses, (xii) restructuring and related charges and (xiii) other items not indicative of our ongoing operating performance, including COVID-19 response initiative related payments for financial assistance to Drivers personally impacted by COVID-19, the cost of personal protective equipment distributed to Drivers, Driver reimbursement for their cost of purchasing personal protective equipment, the costs related to free rides and food deliveries to healthcare workers, seniors, and others in need as well as charitable donations.
Er, hot damn. I can’t recall ever seeing an adjusted EBITDA definition with 12 different categories of exclusion. But, it’s what Uber is focused on as reaching positive adjusted EBITDA is key to its current pitch to investors.
Indeed, here’s the company’s CFO in its most recent earnings call, discussing its recent performance:
We remain on track to turn the EBITDA profitable in 2021, and we are confident that Uber can deliver sustained strong top-line growth as we move past the pandemic.
So, if investors get what Uber promises, they will get an unprofitable company at the end of 2021, albeit one that, if you strip out a dozen categories of expense, is no longer running in the red. This, from a company worth north of $112 billion, feels like a very small promise.
And yet Uber shares have quadrupled from their pandemic lows, during which they fell under the $15 mark. Today Uber is worth more than $60 per share, despite shrinking last year and projecting years of losses (real), and possibly some (fake) profits later in the year.
Wild.
There is good news amidst the Uber results, however. Observe the following riff from Uber’s CEO:
In Q4, we had 15 countries generating over $100 million of EBITDA on just over $2.5 billion of gross bookings. We remain confident that delivery will turn EBITDA profitable in 2021, although we will not hesitate to lean in during the first half of the year.
So: Using Uber’s favorite profitability metric, its growth-critical delivery business may stop losing money this year. That will help them reach its company-wide adjusted profitability metric this year.
By the way, the largest expense Uber stripped from its profitability calculations to generate Q4 2020 adjusted EBITDA of -$454 million from its net loss in the period of $968 million? $236 million in stock-based compensation. That’s dilution.
And Uber is somehow getting away with telling its investors that a quarter billion in quarterly dilution is fine, while promising profit numbers later this year that will also discount Uber paying quite a lot of its employee comp expenses out of investors’ pockets over its own.
And investors are bidding its shares while Uber is making these promises. The stock market is wild!
Anyway, looking back at our coverage of Uber and Lyft’s profitability promises in 2019, we can see that end-of-year adjusted profitability has long been the goal for both firms. So, they have at least been consistent in promising Diet Coke profits for years now.
Speaking of Lyft, let’s chat their math.
Lyft
Lyft shrank in 2020, with its revenue falling from $3.62 billion to $2.36 billion. And after losing $2.6 billion in 2019, Lyft lost a smaller $1.75 billion in 2020. That’s somewhat better.
However, once we get out our adjusted EBITDA wand and wave it once again at those pesky GAAP numbers, things get much better. Lyft’s 2019 loss falls to $678.9 million, and its 2020 deficit slips to $755.2 million.
The difference? Akin to Uber, Lyft’s adjusted EBITDA strips out a host of costs, including share-based compensation and the “payroll tax expense related to stock-based compensation,” which always feels cheeky to me. But the good news is that the metric allowed Lyft to yank $589.5 million out its its profit calculations in honor of helping generate “profit” numbers that look better.
Anyhoo, Lyft is promising the same sort of thing that Uber is, namely some faux profit toward the end of this year. Here’s its CFO from its earnings call (Emphasis: TechCrunch):
Let me provide an update on our path to profitability. The fourth quarter and our plans for Q1 serve as visible proof points of the extent to which we’ve reduced our expense base. Given the impact of new efficiencies and our lower cost structure, we’re even more confident that we’ll be able to achieve adjusted EBITDA profitability by Q4. In fact, based on the improvements we’ve made, there is a chance we can achieve profitability in Q3. Obviously, pulling in profitability would require a strong summer rebound. However, the fact that this is now even a possibility in the Q3 time frame should increase investor confidence.
Wee, such winning. Many profits. Very adjust.
Here Lyft is again promising investors that, if they ignore the fact that Lyft is paying employees with currency (stock) that investors are paying for (with dilution), it may make some money later in 2021. Huzzah.
I mean yes, it is an accomplishment of sorts. Lyft has not generated adjusted EBITDA positivity on a regular historical basis that I am aware of. But I am in awe of the two companies’ abilities to play startup-math with their numbers as if they were an early-stage upstart presenting a merely cash-based forecast to their venture investors while, in fact, they are huge public companies with long operating histories.
It would make a little more sense if they were growing. But they are not. They shrank last year. And they still get to play footsie with the numbers? Wild.
I think the two companies’ rapid valuation appreciation — Lyft fell to around $21 per share during March 2020; today its stock is worth around $56 per share — since the pandemic lows that is impressive. And both companies have worked hard. I just don’t get the kid gloves that others use to play with them.
On the hard work front, Lyft fired a bunch of people last year. TechCrunch covered the cuts, which included nearly 1,000 layoffs and even more furloughs. That sucks. Despite the loss of employee trust and institutional expertise, it helped keep its profit promise alive. The company said as much in our above quote, citing its falling “expense base” as a confidence-booster to its adjusted profit plans.
So Lyft’s operating team slashed headcount and intends to keep praising itself for using investor dilution to comp its workers. Just like Uber! You know investors are in a mood to forgive when this is the lay of the land.
Perhaps investors are right, however. Maybe Uber and Lyft will enjoy a return-to-form this year as the COVID-19 vaccine rolls out. And if so, they could return to revenue growth as they cut their cash burn. That would be pretty kick-ass for both companies. But investors have either very high future cash flow expectations from both companies, or they are overpaying for their net-present value.
And I’m only 80% kidding.
The kicker to all of this is that this is the stock market that all the unicorns are going public into. Talk about a debut at the right moment!