Drilling Down on Uber’s Finances

Late last week, Bloomberg published a selective set of financial numbers from Uber, which had decided to pre-empt inevitable leaks by speaking directly to reporters. The numbers were partial and subject to a number of caveats but still paint an interesting financial picture of Uber at this stage in its history. It’s important both to understand what’s really being reported here and what it means about Uber and the future of both the company and the broader ride-sharing industry.

We’re in Corporate Selfie Territory Here

A while back, I wrote a piece for Tech.pinions in which I argued all financial reporting, even the kind subject to generally-accepted accounting principles (GAAP), is a form of corporate selfie-taking, in which companies choose those metrics and structures most likely to cast them in a flattering light. But when companies get to pick and choose among those GAAP metrics and several others, they’re even more likely to select those which make the case they want to make, rather than those which allow impartial observers to make informed judgments.

So it’s with that as a caveat I’ll examine the Uber numbers, which are very much along those lines. Uber shared just one GAAP metric with Bloomberg – net revenues – while the other metrics were all non-compliant with GAAP. Importantly, the Chinese business Uber exited last year, which had massive declines, is excluded entirely from the numbers and would have contributed another $1 billion to losses.

Revenue Growth Looks Healthy, with Caveats

Net revenues are the cut Uber reports from the gross bookings received through its apps, of which a big chunk goes to drivers and Uber only takes a slice. Even then, it’s made the decision to treat two categories of rides differently: for regular Uber rides, it only reports its cut as net revenue whereas, for Uber Pool rides, it records the entire gross booking amount as net revenue. There’s no explanation for that decision in the Bloomberg piece but it does mean that, as Uber Pool grows as a percentage of total rides taken, revenues will grow more quickly than they would have done for standard Uber rides.

Gross bookings were up 126% in 2016, which is the best measure of how fast the business is really growing, while net revenues were up 28% quarter on quarter (frustratingly, Bloomberg doesn’t report the same periods consistently, comparing different metrics across different periods). Whether you take gross bookings or net revenues as the measure, Uber’s business is clearly still growing very rapidly. That’s a sign of just how early we still are in the ride-sharing market, especially on a global basis. That means there should be plenty of growth left, although Uber is now shut out of a direct stake in China, which was always going to be one of the biggest individual countries for ride sharing. And, of course, there are markets like Taiwan and Italy in which Uber is now prevented from operating or is threatened with such a ban.

Losses are Widening in Dollar Terms

The big focus when it comes to Uber’s financials is always profitability. Uber is legendarily unprofitable because of a combination of subsidizing rides through artificially low prices and the costs of expansion into new markets. The net loss numbers Uber shared with Bloomberg excluded several important categories including stock-based compensation, acquiring vehicles (presumably for testing autonomous driving technology), and several other cost categories, so they’re not a true reflection of Uber’s underlying profitability.

But even then, those losses widened in dollar terms in Q4 2016 from Q3 2016, by around 6%. In margin terms – in other words, as a percentage of revenue – they shrank but again that was affected by the somewhat questionable treatment of Uber Pool bookings as revenue. However, Uber will point to the shrinking losses in margin terms as evidence it is making progress as it continues to grow. We don’t have exactly equivalent numbers from Lyft but it has said in the past its losses are actually shrinking, which means it’s making faster progress towards profitability. That’s partly because it only operates in a couple of markets and, therefore, is at a later stage of maturity than Uber overall. But it may also be a reflection of the two companies’ respective war chests – Uber has a much larger pool of investment to draw on.

The Long-Term Prospects

The big question is whether this picture will change over time and at what point Uber will finally start making more meaningful progress in not only reducing percentage losses but dollar losses. There’s certainly no evidence of the latter in these numbers and, as long as Uber continues to invest so aggressively in growth, it’s not likely to happen soon, especially once all the costs are factored in. As such, Uber remains a very long-term investment, banking on an eventual pivot to profitability through higher prices (perhaps having done irreparable damage to the legacy taxi industry first) and in the even longer term relying on autonomous vehicles.

Autonomous vehicles at scale are still years away and passenger-carrying, self-driving cars perhaps even further, especially on a widespread geographic basis. So, if Uber is banking on autonomy to finally help it turn the profit corner, that’s a little worrying. It has to believe it can turn a profit based on its current model, which probably means significant growth in scale, beyond where it is now, and perhaps also a thinning of the market through elimination of both legacy taxis and similar competitors. There clearly are investor executives at Uber who believe that’s possible but this is definitely an investment on faith at this point because there’s relatively little concrete evidence of that eventuality for now.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

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