Uber Taking Out Empty Calories

Uber Taking Out Empty Calories

Uber reported Q4 2019 earnings with revenue in line with the Street and a net loss 6% better than expectations.

We are incrementally more positive on the Uber story, given the company’s cost-cutting in December did not impact revenue growth, a leading indication that the business model can trend towards profitability. That profitability is now said to come in Q4 2020, ahead of Uber’s previous target of full-year 2021. Longer-term, further upside to margins is in play as autonomy becomes a bigger part of the story, likely starting with a fractional number of vehicles in “a couple of years.”

Other Takeaways:

  • Uber is going to be around for a long time. It remains unclear what the long-term model is going to look like, but the company is moving in the right direction with its focus on profitability and the secular tailwind of shared mobility at its back.
  • Uber makes good on its commitment to cut costs with December adjusted EBITDA losses of $615M vs expectations of $702. Spending remains investors’ primary concern, with December results a step in the right direction.
  • We’re in a slightly different camp than most investors and believe that demand is what’s most important. Overall, while revenue was in line with expectations, it was the 2nd consecutive quarter of GAAP revenue acceleration, finishing the quarter up 39% vs up 30% in Sep. We’re also encouraged by 28% growth in Trips vs 31% in Sep and 36% in Jun. The deceleration had moderated, which is a positive.
  • We believe that Uber is losing market share to Lyft in the US. We estimate rides in the US were up mid-single digits and expect Lyft will grow 40%+ in the US in Q4. For perspective Uber has two-thirds of the market in the US.
  • Dara says regulation has been and always will be a conflict for the company.
  • Uber is cutting costs but maintaining robust revenue growth outlook (high teens %) for 2020 due to pricing power. Lyft and Uber are both getting more expensive to use.
  • The end of 2020 is when Eats financials start to improve. Overall we see it as a business worthy of investment, given its on mark with cultural shifts and their competitive advantage of cross-leveraging Rides and Eats.
  • California has a more strict regulatory environment for drivers, and the associated costs have yet to kick in. The company said they are raising prices in CA faster than other states to subsidize what will be an increased cost of operating. In itself, this is largely a non-event, but if CA’s approach to gig economy workers is adopted more widely, it may jeopardize Uber’s track to profitability. It will likely take several years for the regulatory piece to stabilize.
  • In 2020, Uber plans to push subscriptions, which investors should appreciate. Subscription revenue in 2020 will be fractional but will become a greater part of the Uber story. In 10 yrs, we see subscription-based mobility as the most popular option for moving away from car ownership.
  • Uber expects that Level 4 autonomy is “a couple” years away, and cautions that companies like Waymo and Cruise that do not have a network of demand (aka Uber, Lyft) will not be a viable solution. We believe Waymo could funnel Google Maps and Waze users (more than 1B) into an AV service but largely agree with the fact that ridesharing networks will be the go to market for many self-driving startups. We believe Telsa’s crowdsourced autonomous ridesharing fleet, while years away, is conceptually a viable rival to Uber and Lyft’s autonomy strategies.

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