Last week ride-sharing company LYFT Inc (NASDAQ:LYFT) posted revenue that beat expectations, prompting some optimism that the latest numbers from Uber Technologies Inc (NYSE:UBER) would be similarly positive, and help arrest a slide in the Uber share price that has seen it drop sharply since its debut back in the summer.
Year-on-year revenue growth for Lyft of 63% was way beyond expectations, so investors were hopeful that the downward drag on Uber’s share price might be arrested by similarly positive trends.
It’s certainly hasn’t been a good start for either company, but even less so for SoftBank Corp (T:9434), which has a stake in Uber at a break-even price of around $32 a share. Coming on top of its WeWork losses, further negative headlines around Uber will do nothing for its overall investment brand.
Unfortunately for investors, while there were some silver linings in the latest Q3 numbers, there weren’t enough to assuage concerns that losses were likely to diminish any time soon. While the losses in Q3 weren’t as bad as Q2, they were still worse than expected. Overall revenue did increase by 31% to $3.8 billion, with bookings up 32% to 16,465. However losses widened to $1.16 billion from $986 million a year ago.
Its rides business was the only area that saw some decent revenue and earnings growth, rising to $2.9 billion, an increase of 19%, and a profit of $631 million, however losses in its other businesses dragged the numbers down, despite revenues showing improvements across the board.
Uber Eats’ revenue rose by 105% to $392 million and Freight saw a rise of 78% to $218 million, however, these can’t disguise the reality of a 67% hike in losses for Eats to $316 million, and an $81-million loss for freight. R&D, which includes self-driving cars, also saw losses widen to $623 million.
These numbers aren’t particularly pretty reading for Softbank, which has a sizeable stake in Uber, and which it is now losing money on, with Uber’s shares expected to open sharply lower later today. At some point Uber may well have to decide that throwing money at underperforming and loss-making businesses is not a good use of additional capital.
If we continue to see share price weakness, some shareholders may insist that management cut back on some of these underperforming divisions, in order to slow the cash burn, especially since later this week we have a share price lock-up expiry of 1.7 billion shares. If these get offloaded, then the Uber share price could well plunge towards $25 in very short order.
Somewhat belatedly, investors have realized that multi-billion-dollar valuations need something to back them up, and being profitable, or at least the prospect of being profitable, needs to be part of the business plan. The rides business notwithstanding, there appears little evidence of that so far.
This year alone the company is on course to lose $8 billion, having lost $5.2 billion in Q2 alone, outstripping last year’s loss of $3 billion at a stroke. The company has already started to cut staff, with over 1,000 jobs going in the last 12 months, while also looking to expand in India and other emerging markets.
Its food operation, while growing, still makes up a very small part of overall revenue, and the outlook for that business is no less competitive than its bigger ride-sharing rival.
With the best will in the world, even its current lower valuation of $50 billion is hardly representative of a company that to date hasn’t made a profit, and on current trends may never do so.