Uber Q3 Earnings Preview: Business Service Ramps Up

A small but fast-growing part of Uber may help the company reduce its massive losses—eventually.

Uber for Business lets companies pay for rides for employees, job candidates, and business associates, and then more easily manage the expenses they incur. The service costs companies the price of the ride and up to a 10% fee, depending on the negotiated deal.

Uber has only shared limited financial details about its business-focused offering, which debuted in 2014. It predicts, based on second-quarter results, that the it will end the year with more than $3.5 billion in annual gross bookings, or the amount of money it collects from customers before it pays drivers or takes into account discounts.

From June 2018 to June 2019, Uber also said that gross bookings for that part of the business grew 65%. That is far faster than Uber’s overall revenue, which rose 14% over during the equivalent time frame, and its gross bookings, which increased 31%.

“It’s a small part of the overall business,” said Justin Patterson, analyst Raymond James. “If we look at 2019, Uber will do over $60 billion in bookings, about $65 billion, so $3.5 billion is small.”

If it ever becomes large enough, Uber for Business would provide the company with more recurring revenue that would help it more accurately predict its financial performance. Investors like predictability because it makes for fewer surprises.

The business service also helps Uber lock-in customers for longer periods of time and attract new riders. They’re also more likely to use Uber’s black car service, which is more expensive, and to take longer rides than regular passengers.

“This is definitely a focus for Uber—it’s a growing area,” said Ronnie Gurion, head of Uber for Business. Business customers are “harder to ramp up, but they tend to have more sticky long-term partnerships—longer trips, more premium trips.”

Uber has been cutting costs since its initial public offering in May. Following multiple layoffs, a reorganization, and integrating all of its services into one app, Uber will once again try to convince investors that it’s making financial progress when it reports third-quarter earnings on Monday.

Analysts expect the company to report narrower losses on earnings excluding certain expenses—the company lost a record $5.2 billion in the second quarter—on $3.7 billion in revenue. Uber’s stock, which closed at $31.37 on Friday, is down 30% since the IPO.

Uber for Business includes multiple services. The main one lets companies schedule rides for employees and customers, provide a set number of rides for individual employees, and tie the billing to their corporate payment systems.

Second, Uber for Business also delivers food. Companies can select a number of restaurants for employees to order food from, set a maximum dollar amount for those meals, and then charge them to the corporate account.

Then there’s Uber Health, which works specifically with health organizations to pay for patients to travel to their medical appointments. And finally, Uber for Business recently introduced vouchers, which allow businesses to give free rides to customers.

But Uber isn’t the only player that provides rides to corporate customers. It competes with Lyft, which hasn’t revealed financial details about its rival division.

“It’s definitely a competition,” said Justin Post, analyst at Bank of America Merrill Lynch, adding that Lyft’s share has been growing.

Online spending management company Certify said Uber was the most frequent business expense among North America companies during the second quarter. It accounted for 12.7% of expenses, followed by Starbucks at 4% and Lyft at 3.75%.

But Patterson said there is no way to know whether Uber or Lyft is actually winning, though it’s likely Uber considering it’s bigger size. Uber operates internationally while also providing companies with food delivery. Lyft, meanwhile, only serves the U.S. and Canada with transportation, and no food delivery.

Some customers using Uber for Business already use Uber’s consumer ride-hailing service. In some ways, the two services compete against each other, although it involves only a relatively small number of users, Patterson said.

“There’s likely some degree of overlap, but to the extent it’s rolled out more broadly is a net positive,” Patterson said about Uber for Business.

In the future, Uber for Business plans to customize its service for different industries. For example, it’s already working with auto dealers to give people rides to and from car dealerships by merely tapping on a button on Uber’s app or that of the company that it is partnered with.

“How do we think of other verticals to leverage transportation to address the need of that industry?” Gurion said. “It’s moving from a business-travel mindset to how do we integrate into these industries?”