- Uber’s stock price fell more than 6% in trading Friday as investors digested a less-than-stellar second-quarter earnings report.
- The company lost $US5.2 billion in the three-month period.
- Things could get worse, too, Wall Street analysts warn. Here’s what they’re worried about.
- Visit Business Insider’s homepage for more stories.
Despite some massive, one-time charges related to its IPO, Uber continued to grow its “gross bookings” segment, a closely watched measure that accounts for receipts from taxi rides and Uber Eats orders.
Wall Street remains bullish on the company, with an average price target of about $US51 – about 27% higher than Friday’s close – but there’s plenty to worry about, too.
Here are the biggest concerns on analysts’ minds following the company’s less-than-stellar second-quarter earnings report:
“Ridesharing and Eats revenue growth has slowed sharply in recent quarters, and, in 1Q’19, increased ~10% and ~31%, respectively, on an adjusted basis,” Tom White, of D.A. Davidson, told clients.
Revenue from taxi rides has also been effectively flat for three quarters running, he continued.
“We believe this recent slowdown reflects a combination of “defensive” moves (i.e. UBER responding to competitor pricing changes/promotions “offensive” moves (i.e. UBER tactically lowering take-rate to gain share in select markets and mix-related factors (large-volume restaurant joining Uber Eats, geographic expansion),” White said.
New York City, the US’s largest and busiest ride-hailing market, is considering even more regulations on the for-hire vehicle industry after extending its cap on new vehicle licenses this month.
On their respective earnings calls, both companies railed against the rules, which are designed to relieve congestion and increase driver pay.
“The new rules could potentially restrict where, when, how drivers can work and we just don’t think that’s good for New Yorkers,” Uber CEO Dara Khosrowshahi said “Anyone who thinks that the changes in New York City are good, [that’s] malarkey frankly.”
Lyft’s president, John Zimmer, echoed those remarks:
“Any increase in prices can lead to a decrease in driver work opportunities because of less rides,” Zimmer said. “That’s the point that we’re trying to get across.”
It may never turn a profit
Uber is far from turning a profit. In fact, the company lost more than $US5 billion in the second quarter.
“Our long-term profitability outlook for UBER is rooted in the idea that, at their core, UBER’s two primary businesses (Ridesharing and Uber Eats) utilise low-capital intensity online marketplace business models which, as we’ve seen with other companies in our coverage universe, tend to be solidly profitable for the #1 (and often #2) player in a given large market,” D.A. Davidson’s White said.
“Additionally, we tend to agree with UBER’s claim that the company with the leading category position/market will likely enjoy higher profit margins than its smaller competitors. In the meantime, however, UBER is operating a geographically far-flung business against a relatively crowded competitive set (several of which have considerable funding and appetite to consolidate market share).”
Daniel Ives, an analyst at Wedbush, echoed those concerns.
“This stock remains a glass half empty name due to its lack of profitability and much scepticism about the ride sharing space,” he said in a note to clients.
Japan’s Softbank, a current Uber investor, is raising a second Vision Fund. Depending on where the company decides to deploy that capital, more Uber competitors could gain traction.
“While Softbank has invested in Uber, its second Vision Fund is expected to raise substantial capital that could enter the space and compete against Uber,” Deutsche Bank’s Lloyd Walmsley warned.
A key metric keeps falling
“Core platform contribution profit,” a metric that Uber defines as its rides and eats business, is under pressure from tricky markets where the company is losing money, like Latin America.
“UBER asserts that this non-GAAP GAAP profitability metric reflects the strong unit economics for its business, but, 1H’18 looks set to be a high-water market for this metric for at least the next few quarters, as it’s slid steadily since and turned negative in both 4Q’18 and 1Q’19 due to take-rate pressures in the U.S. and Latin America,” White of D.A. Davidson said.
“Additionally, in its S-1, UBER indicated said that it “expect(s) Core Platform Contribution Margin to remain negative in the near term.”
Self-driving cars are hard — and expensive
Uber’s self-driving car program took a hit in 2018 when one of its autonomous vehicles killed a pedestrian in Arizona. The program is back on track, with heavy spending in research and development on Uber’s latest balance sheet, but it could be behind any of the many competitors in the field.
Uber “trails Waymo and others in next-gen autonomous driving,” Ives of Wedbush listed as a risk to his bullish thesis.
Insiders will soon be able to sell their shares
When a company goes public, shareholders aren’t allowed to sell their stock immediately. Instead, they must wait for a “lock-up” period to end. That’s coming soon for Uber, and could be a negative for the stock as supply increases, according to Goldman Sach’s Heath Terry warned.
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