Uber’s long-awaited initial public offering has analysts mulling over one big unanswered question: Does Uber have a realistic path to profitability?
Uber’s financial details, revealed in the run up to its IPO, confirmed what many had already assumed: It dominates the ride-hailing industry. But whether the company’s shares are a good investment remains uncertain.
Uber said that while it generated $11.3 billion in revenue in 2018, it lost $1.85 billion, excluding the sale of parts of its Southeast Asia and Russia businesses. Meanwhile, its take rate, or the percentage of fares that it keeps rather than gives to drivers, has declined.
The reason? Additional services like UberPool, promotions it offers drivers and restaurants, and discounts it offers to riders. And the growth of its ride sharing and food-delivery services has started to slow.
On the bright side, Uber had 91 million monthly active consumers using its ride hailing, food delivery, and logistics services at the end of 2018. It also said it has 3.9 million drivers, serving more than 700 cities across the globe. Uber can instantly tap into that network in trying to grow some of its other businesses. Uber Eats, the biggest among those side businesses, had $1.46 billion in revenue in 2018, making it one of the top three meal delivery services in the U.S.
In general, analysts say Uber is a company to watch. Here are further details:
Tom White, analyst at D.A. Davidson:
While Uber is the clear frontrunner among ride-hailing services, “sharp” revenue growth slowdowns related to rides and Uber Eats orders are hurting the company’s near-term results. Also, to compete with other services and to expand, Uber has also lowered its take rate, pocketing less money on each transaction.
“We understand it’s going to take some time for these businesses to generate profits, but the trends of Lyft aren’t deteriorating as bad as Uber,” said White, who initiated his coverage on the company with a neutral rating on May 1.
But Uber eventually could turn a profit and prove to be a lucrative investment over the long-term, White said. However, he added: “The near-term trajectory and core platform projections are pretty bad. But we do acknowledge that some investors may be willing to own stock,” because in the long-term, Uber could eventually produce attractive margins.
Daniel Ives, an analyst at Wedbush Securities:
Uber has “built an unrivaled platform that puts them in a situation that very few companies in the last 20 years have found themselves,” said Ives, who initiated his coverage with an “outperform” rating.
The company has become a “three-headed monster,” Ives said, allowing it to dominate the ride-hailing industry, compete in food delivery, and logistics. And though Uber as the upper hand on its rivals, he said its long-term success will be determined by how well it can executive its strategy.
“In the near-term, it’s a murky path to profitability,” he said. “The best case is reaching profitability maybe in the next five to six years, but that’s going to be the biggest question mark for investors.”
Brent Thill, an analyst at Jefferies:
During it’s IPO roadshow, Uber compared itself to Amazon, the one-stop shop for nearly everything in retail. And that comparison isn’t “too far off base,” Thill said.
Uber already has multiple tentacles, and it continues to push boundaries with flying vehicles and autonomous cars – no matter the expense. It spent $457 million alone on research and development for autonomous vehicles, dwarfing Lyft’s entire research and development budget of $300 million, Thill said.
The industry is young enough, he said, for both Uber and Lyft, with Uber as the clear frontrunner.
“Our belief, right now, is you have a duopoly structure,” Thill said. “The closest pressure would be if Google [Waymo] gets into the game.”