Uber promises ‘profit’ milestone this year. Here’s its plan
Uber has big plans for the end of 2020: It hopes to finally become profitable. Kind of.
The ride-hailing service announced plans to cut spending and improve profit margins in its taxi and food delivery businesses. As a result, executives expect the company to be profitable, excluding a number major expenses, a year earlier than its previous goal.
This comes from a company that, using conventional accounting, lost $1.1 billion during the fourth quarter, a jump from the $887 million it had lost during the same period a year earlier. For the entire year, by that same measure, it lost an astounding $8.5 billion.
“I think 2019 was a big, big year for us,” Khosrowshahi said during Thursday’s earnings call, mostly ignoring conventional accounting. “We know we have a lot to deliver on and the team is confident and psyched to execute.”
Uber expects to meet its shortened deadline by improving its algorithms for driver and rider incentives as well as for spending on online marketing. It also plans to do a better job of matching drivers and passengers to be more efficient with routing.
Additionally, the company wants to get better at “controlling costs” including continuing to exit the most unprofitable markets for Eats, its food delivery business. It also hopes to emphasize services with higher profit margins like Uber Comfort, which provides riders with more legroom, and its corporate-focused ride offering.
It’s unclear how the push to pseudo-profitability will affect Uber’s businesses like bikes and scooters, which are considered money losers. And Nelson Chai, the chief financial officer, gave no sign that Uber plans to cut costs in its autonomous vehicle unit, which he said had raised capital last summer and has enough money for the short term.
“They can stop discounting and stop investing in a lot of things tomorrow and force profitability pretty quickly,” said Tom White, analyst with D.A. Davidson. “The question is whether or not it’s good for their long-term trajectory to force profitability at the end of this year.”
Regardless, the news about a plan to achieve profitability on an adjusted basis, coupled with quarterly revenue that beat analyst expectations (the company had $4.07 billion quarterly sales versus the predicted $4.06 billion) helped to send Uber’s stock up at least 6% on Thursday in after-hours trading. At one point, the stock traded at $40.66 per share, though still shy of the $45 pricing for the company’s initial public offering.
“Rome was not built in a day and neither will the Uber growth story,” Dan Ives, analyst at Wedbush Securities, wrote in a note to investors following earnings. “We view these results and the company’s guidance … as key swing factors in now finally moving shares higher.”
While White, from D.A. Davidson, expects to see Khosrowshahi clamp down on spending and focus on efficiency, he doesn’t expect Uber to cut many jobs. Last year, the company laid off more than 1,000 people as part of an effort to reorganize and reduce overlapping functions, as well as to shrink costs.
“My gut, barring any country exits, is they’re probably not going to have any big rounds of layoffs,” White said. “With the employee layoffs last year, they’ll get annualized cost savings from that.”
While investors reacted positively to Thursday’s earnings, Uber’s losses continue to widen. White says that eventually Wall Street will care about true profitability, but for now improvements in adjusted profits and free cash flow are positive signs about Uber’s future.
“You have to walk before you can run,” White said.
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