Uber Technologies (UBER) appears to be taking a detour on its path to profitability which is punishing shareholders that bought into pre-earnings bullishness.
Shares of the world's biggest ride-hailing group fell precipitously in pre-market hours after the company posted a wider-than-expected second quarter loss of $5.24 billion and left investors with little hope of a turn in the trend ahead.
So $UBER says it will "eventually" make money ... after 10+ years of never earning a penny ... in the longest US economic expansion in history? I can't even ...
— Mike Larson (@RealMikeLarson) August 8, 2019
The action is particularly disappointing as key competitor Lyft's (LYFT) strong earnings results on Wednesday evening had built some optimism into the stabilization of the market.
On the back of that optimism, shares jumped by their most significant one-day percentage in the company's short history as a public company. With the earnings release, those gains have quickly been eroded as the stock falls by its largest percentage since its disastrous IPO.
"The fact is that this firm is seriously burning cash. Firms can really only get away with that for a while if they can truly be called growth stocks," Real Money contributor Stephen "Sarge" Guilfoyle commented on Friday morning after being fooled himself on the early "Lyft" in shares on Thursday. "Is UBER a growth stock? Not right now they're not."
Earnings Explanation
So, much like when an Uber Pool that drops you far from your destination, investors are asking: how did I end up here?
For one, Wall Street was left severely wanting in terms of estimates.
Uber said its loss for the three months ending in June came in at $4.72 per share, a far deeper loss than the $2.70 per share expected, while revenues rose a paltry 14% from last year to $3.17 billion, well short of the rate marked by Lyft and again lagging estimates.
Some of the widened losses can be attributed to transitory features of its blockbuster IPO.
"GAAP EPS was a loss of $4.72 which was impacted by a $3.9 billion stock-based compensation charge due to restricted stock units as part of our IPO," CFO Nelson Chai noted, adding that a nearly $300 million driver appreciation award is also baked into GAAP figures.
When adjusted for this massive number, the non-GAAP loss was actually less than $1 per share.
International Erosion
Some of the key factors that many analysts had warned on was the international and diversified business base of Uber's business that makes a corollary to Lyft's results much less clear, helping to explain the dichotomous results.
While the North American market is indeed stabilizing as the domestically-focused Lyft noted, the international arena remains treacherous. Revenues from Latin America in particular fell 24% year over year as Chinese competitor Didi Chuxing and domestic upstarts continue to pressure price normalization.
In terms of addressing the differing dynamics of each market, CEO Dara Khosrowshahi offered little to assuage concerns.
"We will look at taking some of these learnings in different markets. Every single market is its own - has its own character, has it done competitive environment," he acknowledged. "So at this point, we can't point to a specific plan or rollout plan. There are certain markets where we'll introduce the fees and there are certain markets where we won't and we'll be pretty disciplined and data driven in our approach to every single market."
The lack of a firm plan is certainly not helping the share trajectory to close the week.
Of course, the foreign currency risk remains a unique headwind for the ride sharing company, negatively impacting gross bookings by 6%.
Looking into 2019, Uber said increased spending and expansion costs will likely mean the group posts a full-year loss of between $3 billion and $3.2 billion, showing no signs of shrinking losses as the company remains in "investment mode."
"While you often have to make trade-offs in life, we believe that we can continue to invest aggressively and grow while driving efficiencies from scale by building great tech to improve effectiveness and from good old-fashioned focus on the bottom line," Khosrowshahi told investors on a conference call late Thursday. "I think you know that the balance between the top and the bottom line is more of an art rather than a science. So I if I told you that we had kind of the scientific formulae that we're solving for here, we'd be lying to you."
Elsewhere, the Uber Eats business booked some solid growth, but likewise confronts significant headwinds from competition both domestically from the likes of GrubHub (GRUB) and Doordash as well as international entities.
"Q2 2019 monthly active platform consumers growth of over 140% helps drive 98% year on year gross bookings growth at constant currency to $3.4 billion," Khosrowshahi noted. "We made significant progress in expanding restaurant selection with over 315,000 restaurant partners now on the platform at the end of the quarter."
On that trajectory, he said the company will continue to invest and capitalize on key partnerships with restaurants like Starbucks (SBUX) and McDonalds (MCD) .
Still, the stabilization of this market to promote profitability from the venture remains elusive, especially internationally.
"The Eats market will continue to be competitive as competitors have raised funds invest in growth in its fast growing category," Khosrowshahi said. "As a reminder, competitive intensity for our platform most directly impact take rates and sales and marketing expense. That being said, we expect adjusted net revenue growth rates to improve in the back half of the year. For 2019 adjusted EBITDA, we expect the loss of a range between $3.2 billion and $3 billion."
Bottom Line
Overall, while there are significant opportunities to seize upon in the company's sprawling transportation business, there is little reason to promote buying on today's dip even if you are confident in the long term trajectory.
"Uber has a long runway on user acquisition, retention, frequency, and share of wallet to achieve long-term growth forecasts, and we are patient in looking for an inflection within the business," Stifel analyst Scott Devitt concluded. "We like Uber's growth opportunity, scale, and market-leadership in most regions, but numerous competitors at home and abroad, a significantly long road to profitability, and balanced valuation leaves us Hold rated at current levels."
