Understanding Uber’s Q3 Red Ink Spill

Continuing our coverage of Uber’s financial progress, Bloomberg recently broke the news concerning the ridesharing company’s third quarter financial performance. The numbers are surprising, so we’ll add in context as we go.

First, a couple of reminders:

  1. Uber is in the middle of an enormous secondary transaction with Softbank and friends.
  2. The deal will see Uber pick up another $1 billion directly (more on why that matters later) while allowing for extant shareholders to divest a portion of their holdings at a discounted valuation.

Uber currently intends to go public in a 2019-ish timeframe.

Ok, that said, let’s get into the numbers. Prior numbers come from our Q4’16, Q1’17, and Q2’17 coverage of Uber’s finances. New numbers, as noted above, are via Bloomberg.

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Once more unto the GAAP we go.

Facts and Figures

We’ll go over the key performance categories below, including gross bookings (value of all rides taken on the Uber platform), adjusted net revenue (the portion of gross bookings that Uber gets to keep), and losses.

The last category will be a little tricky to unspool, but we’ll do our best. Bear in mind that Uber doesn’t have to tell the world anything, as it is yet a private company. However, it has opted to release select performance metrics on a quarterly basis. It’s an effective anti-FUD strategy, provided that the firm puts up big numbers.1 (The move can backfire.)

Regardless, we’ll kick off at the top of the dollar funnel with gross bookings:

  • Q3’16 gross bookings: $5.4 billion
  • Q4’16 gross bookings: $6.9 billion.
  • Q1’17 gross bookings: $7.5 billion.
  • Q2’17 gross bookings: $8.7 billion.
  • Q3’17 gross bookings: $9.71 billion.

That works out to an 11.61 percent gain in a single quarter during Q3, compared to the sequentially preceding period. Not bad. An 11.61 percent quarter-over-quarter pace, in case you were curious, works out to 55.2 percent yearly growth.

Next up, what those gross bookings worked out to in adjusted net revenue2:

  • Q1’17 net revenue: $1.5 billion.
  • Q2’17 net revenue: $1.75 $1.66 billion.
  • Q3’17 net revenue: $2.01 billion.

First, the gain from the second to the third quarter is 21 percent. That’s pretty good, and it’s ahead of the company’s gross booking’s expansion.

But you’ll note that we have a crossed-out number in the above. That’s because prior reporting put Uber’s second quarter adjusted net revenue at $1.75 billion. Reporting concerning the third quarter has indicated that the figure was actually $1.66 billion. So a bigger Q2 to Q3 jump than we might have anticipated, but a lower Q1 to Q2 jump than we had previously understood.

For fun, here’s Uber’s take-home percentage of gross bookings, over those three quarters:

  • Q1: 20 percent
  • Q2: 19.1 percent
  • Q3: 20.7 percent

Of course, we need to see the S-1 and get our mitts on the real GAAP figures, but from those last three numbers, we can see Uber holding steady. It may also even be growing a bit when it comes to the percent of rides it can keep for itself. Why are those percentages lower than what many drivers will tell you Uber takes? I suspect that Uber’s promotions to drivers (x number of rides in y days to get bonus z dollars) are contra-revenue. That would plug the gap.

Now, the red ink.

Help I’ve Knocked Over My Inkwell

This is where things get tricky. Here’s what we reported previously, followed by the new Q3 number:

  • Q4’16 adjusted loss: $991 million, not including share-based compensation, and costs relating to real estate and cars.
  • Q1’17 adjusted loss: $708 million, again discounting a number of costs including share-based compensation.
  • Q2’17 adjusted loss: $645 million, a figure that was (in our view) the more cogent of the numbers reported. (Note: this number is a bit light for reasons we’ll get to in just a moment.)
  • Q3’17 net loss: $1.46 billion.

So, as you can see, the numbers are tricky. It seems that Uber has released a more realistic (dare we say GAAP?) loss figure. Prior numbers were likely set up to discount non-cash costs and non-operating costs to provide a look at the cash consumed by Uber in the quarter. The words “net loss” imply a more fair shake of the profit stick.

Let’s return to Bloomberg’s recent report:

Uber Technologies Inc.’s net loss widened to $1.46 billion in the third quarter, according to people with knowledge of the matter, as the ride-hailing leader struggled to fend off competition, legal challenges and regulatory scrutiny. […]

But losses, which had been narrowing in previous quarters, reversed course. The net loss increased 38 percent from the second quarter, when it was $1.06 billion.

As you can see, the second quarter figure was $1.06 billion—not diminutive $645 million that we had noted before. This is, essentially, why every company wants to talk about their non-GAAP margins, but we digress.

Now let’s understand how much money Uber is losing as a percent of its revenue. We’ll get the result by simply dividing the firm’s net loss by its adjusted net revenue. Here we go:

  • Q2’17 profit margin: -64 percent
  • Q3’17 profit margin: -73 percent

So that’s bad.

I don’t know what Uber is worth, and I would bet you my monitor that you don’t either. But here is what we can say: As Uber’s gross bookings continue to climb, the cost to run the underlying business is staggering. That’s why, at the start of this piece, I noted the company’s new $1 billion infusion.

The more cash Uber has, the more time it has to figure out its core business. Time it needs to get its core business in IPO shape.

  1. So it’s the opposite of the President’s Twitter account.
  2. Adjusted net revenue in Uber’s case is the good stuff. Every other time we don’t want adjusted anything, but here we are fine with it.

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