Uber Investors Brace for Estimated Quarterly Loss of $5 Billion

[tacobell fan]

Even by the standards of Uber Technologies Inc., $5 billion is a lot to lose in three months of doing business. Yet, that’s the amount analysts expect to see for the second quarter.

An average of analyst estimates compiled by Bloomberg shows an anticipated net loss of $5.27 billion. Most of that total, about $3.5 billion, is expected to stem from stock-based compensation tied to the initial public offering, according to Bloomberg Intelligence. It’s a routine cost for newly public companies—though Uber’s is much larger due to the company’s size—and investors are likely to forgive it as a one-off.

The challenge for Uber is to show that it is, indeed, an anomaly and not a symbol of a larger problem. The company will get that chance when it releases quarterly financial information Thursday afternoon. Investors will probably pay close attention to adjusted losses, which exclude interest, taxes, the one-time compensation costs and other expenses. Even by that measure, analysts expect the second-quarter loss to widen by 74%, to $979 million.

If Lyft Inc.’s recent performance is any indication, the ride-hailing business is showing signs investors want to see. Lyft, the main alternative to Uber in North America, reported Wednesday a quarterly loss and sales that were better than expected, while boosting its forecast. The report, which indicates an easing in the price war between Uber and Lyft, helped buoy both stocks by about 4% in extended trading.

But Lyft and Uber remain in the red. The impending $5 billion net loss for Uber underlines just how far the business is from turning a profit. It’s more than what New York City spends to run the entire subway system over the same time frame. It’s larger than the amount Boeing Co. said it would write down to cover potential costs associated with its troubled 737 Max airplane. And Uber’s loss would be nearly 10 times more than Amazon.com Inc. has ever lost in a quarter.

Analysts estimate that the second-quarter loss will account for more than half of the $8.3 billion Uber is expected to lose this year. That’s twice as much as the loss in 2017. Last year, the company generated $997 million in net income, thanks largely to the sale of its Southeast Asia business.

But the loss isn’t expected to spark a selloff in the stock, said Tom White, an analyst at D.A. Davidson. Wall Street remains optimistic, with 23 analysts giving Uber a buy rating. Eleven list the stock as a hold, and just one says sell, according to data compiled by Bloomberg.

At some point, Uber is expected to spend another $2.5 billion on stock compensation, said Mandeep Singh, a senior analyst for Bloomberg Intelligence. Those costs don’t really factor into Uber’s long-term prospects, which is what investors are fixated on, Singh said. They don’t require Uber to spend any of its cash, leaving it with plenty to burn through before needing to tap debt or sell more stock on the market.

Investors are focused on much wonkier measures of Uber’s economics. They’re trying to assess the health of the ride-hailing business and food delivery using metrics such as gross bookings and contribution margin. Revenue growth remains another major concern. If Uber keeps burning so much money, it needs to show investors that it can still grow meaningfully.

There are plenty of skeptics. The stock closed Wednesday at $39.70, about 12% below the IPO price. Of all Uber stock available to trade, 19 percent is held by short sellers betting the price will decline.

Len Sherman, an adjunct professor at Columbia Business School, teaches an Uber case study. He sees Uber as a fundamentally doomed company, one without a path to sustainable profits. His prophecy will take time to play out but is inevitable, he said. “There’s nothing in their 10 years of operation that would suggest that it’s going to show a real positive trend,” Sherman said. “Dinosaurs take a long time to die.”