Uber's Latest Financials Provide More Reasons to Tread Carefully
Uber's original IPO filing, which was released on April 11 and contained its Q4 and 2018 financials, featured its share of worrisome numbers -- some of which were clearly worse than the numbers provided by Lyft (LYFT) , which continues trading well below its $72 IPO price. An updated IPO filing that contains Uber's Q1 guidance doesn't look much better.
In its new IPO filing, Uber says it expects to report Q1 "adjusted net revenue" -- that is, the revenue that's left after backing out referral fees and "excess" driver incentive payments -- of $2.695 billion to $2.77 billion, and a GAAP operating loss of $1.005 billion to $1.131 billion. The midpoint of Uber's adjusted net revenue guidance implies 13% annual growth, down from Q4's 17% growth and 2018's 43% growth. Operating loss, meanwhile, is expected to be more than twice a year-ago level of $478 million.
Uber's bookings growth still looks healthy: The midpoint of Uber's Q1 gross bookings guidance of $14.443 billion to $14.658 billion implies 35% annual growth, just a slight decline from Q4's 37% growth. The company is also guiding for its monthly active platform consumers (MAPCs) to be up by 2 million sequentially (seasonality is a headwind) and 23 million annually to 93 million.
However, the large gap that exists between Uber's bookings and adjusted net revenue growth rates drives home how (as was the case in Q4) Uber's take rate on bookings remained heavily pressured by the fact that the Uber Eats food-delivery service, which carries a much lower take than Uber's ride-sharing operations, is now driving much of its bookings growth. Moderate declines in Uber's ride-sharing take rate also continue to weigh.
The midpoints of Uber's adjusted net revenue and gross bookings guidance ranges implies a total take rate of 18.8%, down from a year-ago level of 22.2%. At its guidance midpoints, Uber is forecasting a take rate of 7.5% for Uber Eats, up from a Q4 level of 6.4% but down from a year-ago level of 12.4%. For ride-sharing, Uber's guidance midpoints imply a take rate of 20.4%, up slightly from Q4's 20.2% but down from a year-ago level of 22.6%.
Throw in Uber's still-large operating losses -- the company's cost structure, competitive environment and discretionary investments are all weighing -- and it's not hard to see why Uber, whose bankers were reportedly aiming for a valuation of up to $120 billion last fall, is now aiming for an IPO valuation of just $82 billion to $93 billion after factoring outstanding stock options, restricted stock units, warrants and convertible debt.
Even at that reduced valuation range, Uber -- though certainly a valuable company possessing a clear leadership position in an industry that still has a lot of room to grow globally -- doesn't look cheap, given its losses and revenue growth trends. The company might be comparing itself to a young Amazon.com (AMZN) , but it's seeking a much higher valuation than what Amazon possessed in its early days, and it has a long ways to go before its margin trajectory and earnings power look anything like Amazon's have in recent years.
Many Signs Still Point to Apple Designing Its Own iPhone Modems
The Telegraph reports Apple (AAPL) hired Umashankar Thyagarajan, who had previously worked as a senior modem engineer at Intel (INTC) , in February. The hiring occurred two months before Apple settled its bitter patent-licensing dispute with Qualcomm (QCOM) , in a deal that featured a "multiyear chipset supply agreement."
The move also came shortly before Apple announced that it plans to hire 1,200 workers in San Diego (where Qualcomm is headquartered) for a "principle engineering hub," and around the same time that Reuters reported Johny Srouji, who heads Apple's internal chip development operations, is now overseeing its modem engineering team. A look at Apple's San Diego job openings on LinkedIn still turns up many wireless chip engineering positions, including some related specifically to modem development.
Developing a quality, multi-mode, cellular modem requires years of work and a large R&D budget. For that reason, it's understandable that Apple would still need to rely on Qualcomm in the near-term for its 4G/5G modem needs even though it's apparently investing heavily in an internal modem project.However, based on what's known and what has been reported, it definitely wouldn't be surprising to see 5G iPhones featuring Apple-designed modems -- possibly integrated within a system-on-chip (SoC) that also contains an A-series app processor -- arriving in 2021 or 2022.
Spotify's Earnings Don't Put Profitability Concerns to RestRelative to Wall Street's expectations, Spotify's ( SPOT) Q1 report was hardly awful. But it also didn't do much to address the questions about Spotify's long-term profitability that have floated around it since before it even went public.
Spotify, whose shares are down about 1% post-earnings on Monday afternoon, reported Q1 revenue of €1.51 billion (up 33% annually and equal to $1.69 billion) and an operating loss of €47 million ($52 million); revenue was near the high end of a guidance range of €1.35 billion to €1.55 billion, while operating loss was better than guidance of €50 million to €120 million.
Premium subscribers came in at 100 million, at the high end of Spotify's guidance range and up 32% annually; Apple Music, by comparison, reportedly had 56 million subs as of last November. Free cash flow (FCF) more than doubled annually to €173 million; though FCF can be lumpy from quarter to quarter, Spotify has consistently delivered positive cash flows thanks to the fact that it gets paid for subscriptions before it has made the licensing payments owed on them.
However, Spotify's guidance is mostly in line with expectations. The company is guiding for Q2 revenue of €1.51 billion to €1.71 billion and a quarter-ending premium subscriber count of 107 million to 110 million, which compares with consensus estimates of €1.62 billion and 108 million.
And the company is reiterating its full-year revenue, subscriber and monthly active user (MAU) guidance.
In addition, though Spotify beat its Q1 operating loss guidance and is issuing above-consensus Q2 operating loss guidance, Spotify improved its full-year operating loss guidance by $20 million, to a range of €180 million to €340 million. Meanwhile, the company still expects a full-year gross margin (GM) in the range of 22% to 25%; that's below a 2018 GM of 25.7%.
In spite of tough competition from Apple (AAPL) and to a lesser extent other players, Spotify is still growing its subscriber base at a brisk clip. However, the licensing deals it has in place with top music labels still weigh heavily on its margins. And these deals, together with the large R&D and marketing investments the company has to make to help keep rivals at bay, are still resulting in sizable full-year operating losses.
Unlike Netflix (NFLX) , which invests heavily in original content that's exclusive to its platform and can obtain superior returns on those investments thanks to its unmatched scale, Spotify remains highly dependent on content from music labels that's also licensed to many rivals, and whose licensing costs grow with each subscriber that Spotify adds. Moreover, since Spotify does have credible competition, and since the Big Three music labels (Sony (SNE) , Universal and Warner) collectively account for well over half of all Spotify listening, the company has limited negotiating leverage with top labels in spite of the immense popularity of its services.It's because of these business model challenges that I've been cautious on Spotify's stock since its IPO, in spite of generally being a fan of its services. In the long run, the company's efforts to become a major podcast advertising player could change its financial story. But for now, Spotify needs to do more to improve the bottom-line performance of its music subscription business to make its current $25 billion valuation look like a good deal.
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