Will Uber Ever Stop The Bleeding?

Corrected

Uber's New CEO Faces Some Big Challenges

With so many scandals, it's easy to lose track of one of the biggest problems over at Uber's San Francisco offices: figuring out how to make money, or at least lose less of it.

I got my hands on some never-before-published financials and talked to Uber insiders about what to make of them. The blood-letting is jarring. Over just three months this year, the ride-sharing company lost $1.5 billion.

We're getting this information now because SoftBank and Dragoneer finally launched their bid to buy Uber shares at an implied $48 billion valuation. I'm getting messages from former employees who are trying to figure out the deal. One wrote, “Uber. Where longterm former employees ask reporters for information about their tenders.”

Interested Uber shareholders got an overwhelming packet of information on the deal from NASDAQ Private Market, including Uber's financials. A few noble employees read me the numbers over the phone.

Here are the numbers you should pay attention to mixed in with some useful financial information that Uber has provided me in the past.

2015
Gross bookings: $8.9 billion
Net revenue: $2.01 billion
Total cost and expenses: $3.33 billion
Loss from operations: ($1.33 billion)
Net loss: ($2.66 billion)

2016
Gross bookings: $20 billion
Net revenue: $6.45 billion
Total cost and expenses: $9.42 billion
Loss from operations: ($3 billion)
Net loss: ($319 million)

2017 Second Quarter
Bookings: $8.74 billion
Net revenue: $1.66 billion
Non-GAAP gross profit: $749 million
Pro forma EBIT loss: ($645 million)
Adjusted EBIT loss: ($894 million)
GAAP loss: ($1.06 billion)

2017 Third Quarter
Bookings: $9.71 billion
Net revenue: $2.01 billion
Non-GAAP gross profit: $865 million
Pro forma EBIT loss: ($743 million)
Adjusted EBIT loss: ($1.15 billion)
GAAP loss: ($1.46 billion)

It's worth noting that in 2015 and 2016, Uber's net revenue included the total fare for the carpooling service UberPool, inflating the amount of revenue. Uber has since changed its accounting practice based on revised GAAP rules, and only includes its share of the revenue from UberPool.

OK. What to make of all this? Let's look at the bull case first. Here's how Uber has pitched investors over the years: Focus on gross bookings. That's the figure that reflects the total value of fares paid to drivers. It is a massive number and it keeps doubling.

Gross bookings have grown exponentially for years, from $685 million in 2013 to $2.9 billion in 2014 to $8.9 billion in 2015 to $20 billion last year, according to a chart Uber provided in April. Last year, Uber more than doubled at massive scale.

Now look at 2017, Uber has said that its first quarter gross bookings were $7.5 billion. Add that to the gross bookings numbers disclosed to investors and we get to $26 billion over nine months this year. Uber's fourth quarter is traditionally Uber's best quarter thanks to holiday travel. If Uber's fourth quarter grew by half as much as it did last year, it would reach $11 billion. That would translate to $37 billion in gross bookings for the year. Uber would come just short of doubling its gross bookings compared to the previous year.

(In the summer of 2016, Uber told prospective investors that the company was targeting gross bookings between $38 billion and $42 billion for 2017. So even with a truly terrible, god awful year, the company could just miss its target.)

The bull case is also buoyed by signs that Uber can increase its share of gross bookings, what the company calls its take rate. In the second quarter of this year, Uber's share of gross bookings came in at 19 percent. In the next quarter, Uber took nearly 21 percent. That increase is good news for Uber's shareholders and bad news for drivers. Uber has told investors in the past that it thinks that it can sustainably reach a take rate of from 22 percent to 26 percent of gross bookings.

HOWEVER, unless you're Amazon, eventually you have to make a profit. Enter the bear case.

Uber had previously disclosed to investors and the press a number it refers to as "pro forma adjusted EBIT." That is, its loss excluding one-time expenses like legal penalties and write-downs. It also excludes interest, taxes and stock-based compensation. According to that way of doing the math, Uber's loss was only $743 million in the third quarter of this year.

I can see why the company likes that number. The question is whether fines, lawsuit settlements and write-downs are unusual or a perpetual feature of Uber's business model. I'd recommend re-reading my story on Uber's legal problems.

Uber's true net loss, which the company is disclosing for the first time to investors, is jarring. Uber lost $1.46 billion in the third quarter. Uber's loss from continuing operations is on track to significantly surpass the $3.2 billion achieved in 2016. (One note: Uber's 2016 loss looks so small because the company took credit for the sale of its China business to Didi. Look at operating loss if you want to understand the outflows that year.)

As worrying as the depths of Uber's loss, is its trajectory. Even when you look at the numbers as Uber likes to count them, the company's loss grew by 15 percent in the third quarter from the previous three months. At the end of the first half of this year, Uber had $6.6 billion cash on hand so it won't run out anytime soon.

As gross bookings continue to soar, the question remains whether Uber will ever be able to make a profit.

This story also ran on Bloomberg’s technology newsletter Fully Charged. Sign up here.

(Corrects by  adding the dropped ‘r’ to company name in the fifth paragraph.)
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