Losses are set to widen to $5bn whilst core platform growth tails off
Overview
Investors get another chance to rate Uber's aggressive and complex growth strategy when it releases second-quarter results on Thursday.
Recent events and impact
The self-styled transportation and logistics company is fighting for market share on several fronts as it struggles to stabilize a sprawling global footprint. Yet it has spent some of the last three months fighting the latest in a string of lawsuits. None of those, nor a deep backlog of litigation are likely to bring Uber (NYSE:UBER) down. But lawsuits complicate an already byzantine investment case further.
What to watch - Performance and Strategy
Investors are also trying to square a likely deceleration of top-line growth and weakening U.S. rider trends—after price increases—with rising conversion rates (known as ‘take rates’) as Uber rolls out a loyalty programme and cuts rider subsidies. A strong second quarter in 2018 will also temper growth in Q2 2019. Rising advertising spending to boost the brand will keep underlying profits a distant prospect too.
What to watch – Gross Bookings
Revenues on the ‘core platform’ from bookings (trips and food orders) will be a key performance metric as usual. Like many Uber growth stats, bookings growth is trending lower as the group cedes market share to rivals. Investors are alert to any unexpected acceleration of the decline. A sharp drop would be a significant negative for Uber shares. Gross bookings on Uber’s main cab and takeaway apps are forecast to rise to about $15.53bn in Q2, from $14.52bn in Q1. However, the pace is expected to fall to about 32% in Q2 from 34% in Q1. Growth in the respective 2018 quarters was 48% and 56%.
Growth at constant currencies—using fixed FX rates—is following a similar pattern. Bookings jumped 41% in Q1 at flat FX rates, but they leaped 53% in Q1 2018.
What to watch – Financials
Uber continues to make eye-watering quarterly losses and profitability are many years away. Indeed, the group warned in its IPO prospectus that it may never make a profit. The first step to profits would be an improving core platform margin. Yet this fell to a negative 4% in Q1 from a positive 18% in the same quarter last year. Sales and marketing pressures are abating but the margin is likely to stay negative into 2020. As such, Uber’s operating loss is forecast to widen sharply to $4.97bn in Q2 from minus $662m in the year before. In Q1, Uber lost ‘just’ $1bn. A bigger than expected loss would trigger a sharp negative share price reaction.
Here are the major financial forecasts for Uber’s second-quarter (Consensus compiled by Bloomberg)
| Q2 | Q1 | Q2 2018 | Revenues: | $3.057bn | $3.1bn | $2.77bn | Operating loss: | -$4.97bn | -$1.02bn | -$662m | Pre-tax loss: | -$5.145bn | -$991m | -$836m | Loss per share: | -$3.32 | -$2.23 | (Not reported) |
Other key points to watch
- Uber Eats India sale? This would be the latest tactical exit from a key region in recent years. If reports are correct, investors might interpret that as good news. Exiting India would point to an increased focus on markets where it has the edge. Uber may have an update on Thursday
- Intensifying competition: Takeaway.com’s £5bn agreement to buy Just Eat (LON:JE) this week is but one example of consolidation that’s making Uber rivals more of a threat. In theory, Just Eat/Takeaway will be the world’s biggest online take-out firm by sales, except in China. Uber sold-out to Didi in China in 2016 but retained a minority stake. With Uber prioritizing taxi market share over revenue growth, food delivery will be its key t the medium-term growth driver. The perception that rivals are getting a toe-hold is negative for the stock.
Possible share price reaction
Uber sentiment has been lackluster since its mega IPO fizzled. The stock remains 12% below the launch price. With pessimism increasingly trenchant, any upside surprise could deliver a positive-shock to shares. Uber’s back story as the ‘final’ e-commerce frontier could then return to the fore. If so, the shares would see exponential benefits. Missing forecasts or just meeting expectations would test investor patience further. Options pricing shows relatively high put/call volume ratio and skew. Both can be interpreted as a bias for downside protection, pointing to the bearish sentiment among options traders.
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Any references to historical price movements or levels are informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Losses are set to widen to $5bn whilst core platform growth tails off
Losses are set to widen to $5bn whilst core platform growth tails off