Here are some of the stories about Uber’s 1Q published results.
https://www.wsj.com/articles/ubers-first-quarter-sales-rise-70-as-it-preps-for-ipo-1527107700 https://www.nytimes.com/2018/05/23/technology/uber-finds-profits-in-leaving-tough-overseas-markets.html https://www.bloomberg.com/news/articles/2018-05-23/uber-shows-a-quarterly-profit-sort-of-thanks-to-grab-deal https://www.recode.net/2018/5/23/17380952/uber-2018-financials-yandex-grab-softbank https://www.ft.com/content/d7ab2be4-5e1a-11e8-ad91-e01af256df68
Profitable … So the headlines claim. But the profit is a one-off gain from selling Uber S E Asia to Grab for shares in this unlisted company which Uber then valued at almost US$3 billion.
Fake news; fake profit.
All stories mentioned that Uber’s reported “profit” was entirely due to the one-time $2.94 B accounting “gain” on the Grab sale. But most stories highlighted “Uber profit” in their headlines and few made a serious attempt to explain that this gain was a one-time accounting entry. Even with their attempts to clarify, the overall takeaway most people will get from these reports is “Uber is now profitable”
In contrast to these stories, the Financial Time’s Lex column states “Uber is solidly loss making with slowing growth…and has some way to travel to convince markets its numbers add up before going public”
But people who read the FT’s “news” story (or the NYT, or WSJ shown above) would have no idea that the numbers told this kind of story.
None of the stories made any attempt to explain how the sale of a hopelessly unprofitable operation could generate a $2.94B accounting “profit”, or made any attempt to explain that it was entirely based on Uber’s opinion about how much Grab (currently money-losing and unlisted) might be worth … some day. None of this “profit” had nothing to do with the exchange of assets where the underlying value had ever been audited or based on exchanges in public markets.
But underlying this is another story, that of Uber actually making an approximately half-billion US$ P&L improvement in a single quarter, which, if true and if sustainable, would be the real story here, and no one explained how this was achieved. Half of this fantastic turnaround appears to have come from a material cut in driver compensation compared with the 4th Q (Uber drivers continue getting less and less of what passengers actually pay) and the other half from a cut in Overheads and Depreciation expenses. And even with these substantial and probably unsustainable cuts Uber continues to lose money.
Most stories continue to focus on Uber’s hoped-for 2019 IPO, but none attempted to explain whether the 1Q data enhances this option or makes it more unlikely. Uber still can’t explain how or when it might achieve breakeven, much less generate the sustainable profits investors will need to see.
Much of the huge Overhead cuts were related to reduced spending on future growth.
Any company can boost current earnings if they stop spending for the future, but typically not “growth companies” and not prior to an impending IPO. The quarter-over-quarter growth in gross passenger payments was an anaemic 4%. Obviously, the idea is that “growth companies” can use the strong profits and cash flow from their core business to fund a variety of longer-term growth opportunities. The stories about Uber continue to be about hype and hope and ignoring its awful eight years of actual loss making.
I don’t think Uber will ever make sustainable profits and that current investors hope there is a greater fool out there ready to buy them out.