Uber’s plan to turn billion-dollar losses into profits isn’t crazy

Uber CEO Dara Khosrowshahi in December 2019.
Enlarge / Uber CEO Dara Khosrowshahi in December 2019.

Scott Heins/Getty Images

Uber announced on Thursday that it lost $1.1 billion in the fourth quarter of last year. As I said last quarter, this wasn’t a surprise. After all, Uber lost $1 billion in the first quarter of 2019, a lot more than $1 billion in the second quarter (though most of it was one-time charges related to Uber’s IPO), and $1.1 billion last quarter. Uber has been burning cash at about this rate since at least 2017.

The losses might seem endless, but CEO Dara Khosrowshahi says that the end is actually in sight. The company previously said it was aiming for profitability in 2021. In a Thursday conference call with investors, Khosrowshahi said that Uber was actually on track to turn a profit even earlier: by the fourth quarter of this year.

Could Uber really reach profitability so quickly after years of 10-figure quarterly losses? Uber management has always argued that the situation was temporary—that big losses were driving Uber’s rapid growth and would turn into profits once Uber’s growth leveled out.

This argument has more merit than it might appear at first glance. Uber really does face a tradeoff between growth and profitability. Until now, the company has leaned heavily on the growth side of the scale, regularly offering big discounts to attract more customers. If it simply stops doing that, it will do wonders for Uber’s cashflow.

A good illustration of this point is the contrast between Uber’s original rides business and its newer Uber Eats service. Rides grew just 20 percent (adjusting for currency changes) between Q4 2018 and Q4 2019, which is slow compared to Uber’s early years, and slightly slower than last quarter. And at least on an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, the rides business is profitable. It earned $742 million in the last three months of 2019—more than last quarter’s figure and a lot more than the $195 million Uber earned in the same quarter of 2018.

By contrast, Uber Eats is still growing rapidly, with gross bookings rising 71 percent (again, adjusting for currency fluctuations) between Q4 2018 and Q4 2019. But that rapid growth has come with massive losses: Uber says Eats lost $461 million (again, on an EBITDA basis) in Q4 2019. That’s a remarkable figure because Uber’s Eats revenue (excluding money that went straight to restaurants or drivers) was only $734 million. In other words, Uber lost more than 60 cents on every dollar of Eats revenue it took in.

So the case for optimism about Uber is that the company’s cashflow will naturally improve as its growth levels off. With ride-hailing near saturation in many markets, it no longer makes sense for Uber to heavily subsidize rides. As the company has cut back on subsidies, the rides business has naturally gotten more profitable. Perhaps that trend—less growth but more profits—will continue in the rides business in the coming quarters. And perhaps Uber Eats is on a similar trajectory—just a year or two behind. As the meal delivery business saturates, Uber will stop offering big discounts there, too. That will naturally make the service—and perhaps Uber as a whole—more profitable.

One thing that’s clear is that Uber is in no danger of running out of money. Uber says it has $11.3 billion in cash and short-term investments—enough to continue at its current burn rate for almost three years.

Investors seem to find Khosrowshahi’s new profit target credible; the stock has risen about six percent in after-hours trading since Uber released its financial results.


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