While Uber's (UBER) new adjusted EBITDA guidance is encouraging, there is a bit of fine print attached.
During Uber's Thursday earnings call, CEO Dara Khosrowshahi said that his company now expects to achieve positive adjusted EBITDA in Q4 2020, after having guided in October that this would only be achieved for the whole of 2021.
Given that Uber had Q4 2019 adjusted EBITDA of negative $615 million, and that the Q4 2020 consensus going into earnings was negative $348 million, this outlook is going over pretty well with investors: Uber's stock is up over 9% as of the time of this article, and its highest levels since last August.
But it's worth remembering that -- contrary to many headlines to the effect -- Uber isn't forecasting that it will be fully profitable by Q4. Adjusted EBITDA excludes interest, tax, depreciation and amortization expenses, and in Q4 2019, Uber recorded $195 million worth of interest expenses on debt and $109 million worth of depreciation and amortization expenses.
And positive adjusted EBITDA definitely isn't the same as positive free cash flow (FCF). Uber posted 2019 FCF of negative $4.9 billion -- some one-time events were partly, but not fully, responsible for this cash burn. Meanwhile, consensus 2020 and 2021 FCF estimates stand, respectively, at negative $2.45 billion and negative $641 million, and positive FCF is expected to be achieved in 2022.
Also, while Uber's adjusted EBITDA guidance was better than expected, the same can't be said for its bookings and revenue guidance. CFO Nelson Chai forecast that Uber expects 2020 gross bookings of $75 billion to $80 billion (up 15% to 23%) and adjusted net revenue (ANR, which excludes driver referral fees and "excess" driver incentive payments) of $16 billion to $17 billion. Those numbers are below consensus estimates of, respectively, $81.85 billion and $17.08 billion.
While it's possible that Uber is being cautious with its guidance, Chai did note that 2020 bookings will be hurt by Uber's efforts to boost revenue take rates and grow its EBITDA margins. In other words, there's a price attached to Uber's push to become EBITDA-positive by year's end.
Meanwhile, considering how Lyft (LYFT) (up over 4% in Friday trading) and private DoorDash have already been gaining share in the U.S., and how China's DiDi has been gaining share in Latin America, one has to wonder how much Uber's profit push will affect it competitively.
Lyft, which operates only in the U.S. and Canada, reported that its revenue, active riders and revenue per active rider in Q3 were up, respectively, 63%, 28% and 27%. For the fourth quarter, Uber, which operates in many foreign markets in addition to the U.S., reported 18% bookings growth and 30% ANR growth for its ride-sharing unit.
And on Wednesday, app data provider Apptopia raised eyebrows by reporting that its data indicates Lyft's U.S. daily active users (DAUs) are now almost even with Uber's, and (with the help of a "significantly higher" app retention rate) are poised to surpass Uber's in Q4 2020.
Also, on Uber's call, Khosrowshahi disclosed that over the last month or so, Lyft has become "more aggressive in terms of discounting and incentives." Those comments contrast a lot with remarks on past calls about a more favorable pricing and promotional environment within the U.S. ride-sharing market. Lyft's Q4 report and call, which arrive on Tuesday, should yield more color on this subject.
In the hotly-competitive U.S. meal delivery market, research firm Second Measure estimates DoorDash grew its market share from 19% to 33% in 2019, and that Uber's Eats unit (though growing rapidly on an absolute basis) saw its share drop to 19% from 22%. GrubHub's (GRUB) 2019 share was pegged at 32% (down from 43%), and private Postmates was assigned a 10% share (up from 9%).
Eats has been an outsized contributor to Uber's losses and cash burn. In Q4, Uber's ride-sharing segment adjusted EBITDA of $742 million (up 281% annually), and may have been slightly profitable after accounting for their share of various expenses that are excluded when calculating that figure. But Eats had segment adjusted EBITDA of negative $461 million, worse than Q4 2018's negative $278 million in spite of 73% bookings growth and 154% ANR growth.
So much of what's going on right now in the U.S. meal-delivery market looks unsustainable, and I and many others have argued that consolidation is just a matter of time, after which the market's economics are likely to look much better. There have already been reports of M&A talks between various players. And given their balance sheets and their ability to subsidize meal-delivery losses with profits in other businesses, Uber and GrubHub appear at first glance to be the most likely consolidators.
But things don't always go according to plan. While Postmates appears to be in dire straits, DoorDash, which has been taking share and has several deep-pocketed investors, might wager that it can afford to keep taking share and by doing so make Uber or GrubHub throw in the towel.
Here, it's worth noting that DoorDash raised more than $1 billion last year and was reported in December to be projecting a $450 million 2019 loss on revenue of $900 million to $1 billion. For comparison, Uber Eats, which also operates in some international markets, posted a 2019 adjusted EBITDA loss of $1.09 billion on ANR of $1.48 billion, after excluding its recently-divested Indian operations.
If DoorDash and/or Lyft keep their proverbial feet on the pedal this year, Uber may have to choose between making good on its Q4 EBITDA goal and accepting major share losses.
