Despite Uber Posting Its Largest Quarterly Loss, Shares are Going Up
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August 09, 2019
Uber has disclosed earnings for the second time since becoming a public company, reporting revenues of $3.16 billion on losses of $5.2 billion for the second quarter of 2019.
After Lyft announced it surprisingly, better-than-expected results, all eyes were turned to its main competitor – Uber. However, Uber hasn’t been nearly as successful and has disappointed investors with its second-quarter results that showed a huge drop caused by costs related to its initial public offering.
Even though this ride-hailing giant said competitive pressures were easing, its net loss grew to very huge $5.2 billion from just $878 million a year ago. However, Wall Street analysts say they were expecting this kind of unraveling. They also expected $3.9 billion in stock-based compensation expenses related to its IPO. Revenue, however, rose 14 percent to $3.2 billion, but it’s still a bit lower than analysts expected ($3.4 billion). It is also seen slowing from the first quarter’s 20 percent growth rate.
However, at the time of writing, Uber stock went up 8.24% to $42.97.
Uber CEO Dara Khosrowshahi commented on the situation the following way:
“We could push the company to break even if we wanted to, frankly, but I think what you will see from us is…lower losses going forward while at the same time we aggressively invest in new growth levers.”
He said, however, that he hasn’t any doubts that the business will be a break-even and profitable.
Khosrowshahi said he expects 2019 to be the company’s peak loss year and for the losses to gradually lessen during the next few years.
He added that he is pretty much confident in the scale of Uber’s ridesharing business and its technical capabilities. He admitted though that he doesn’t expect the Eats food delivery business to be profitable next year or the year after.
“I think what we have is a great combination of a ride business that is going to turn more profitable over the next couple years, that will allow us to invest aggressively in the Eats business and also carry a bottom line that improves,” noted he, though.
Also, Khosrowshahi spoke of how Uber’s competitive tactics are improving. He noted that people are generalizing the facts and that they are planning to be more efficient with their marketing spending. Also, he mentioned they were in a process of restructuring their marketing team following layoffs last month.
Be it as it may, now that Uber and Lyft have gone public, their pricing is going to get higher. The two giants need to pacify their investors and show them some money profits. It was noted that some of the more indigent neighborhoods in New York City, for example, are not growing in usage because consumers cannot afford the higher prices. On the other hand, Khosrowshahi mentioned that Uber is growing faster in areas of the city where consumers can afford significantly higher prices.
Price moves could for sure help Uber to reach so much-needed profitability, but such swings can weaken their usage among consumers.
Tom White, a senior vice president at the financial firm D.A. Davidson said that what investors are looking for is the evidence that the company can reaccelerate revenue growth after the last few quarters.
The truth is that the ride-hailing industry has faced critical examination during the recent few months because of the way its businesses spend money with no even near probability of profits. Companies must constantly spend freely for stimulus in order to attract passengers and drivers and to avert competition.