Tuesday's Market Minute: Analyzing Uber Earnings

Uber Technologies UBER is trading higher premarket after reporting 2Q earnings. The company missed FactSet revenue estimates but reported a surprise positive EPS. Uber’s gross bookings have seen improvement since even before the pandemic – this quarter’s doubled the same quarter in 2019. Trips and Monthly Active Platform Consumers are also up since 2019, and it reported its first-ever GAAP operating profit for 2Q23. CEO Dara Khosrowshahi said that Uber’s “path to growth is centered on our ability to grow supply, and our focus on driver growth over the last several years has resulted in a significantly improved consumer experience.” 

A recent Business Insider article makes the argument that many “disruptors” are never meant to scale into profitable companies – they’re meant to make money for the early shareholders through a sale or an IPO. They run at a loss on the promise of a path to profitability, sucking up investor money to finance undercutting their competition, but without a timeline of stopping that subsidy, even when they’ve outcompeted the establishment (in this case, taxicabs). In Uber’s case, while shares have never regained their high of $64.05 from early 2021, it is trading above its IPO price.

Pre-pandemic, Lyft and Uber both claimed that the ultimate goal was self-driving, getting rid of the drivers that made up a giant chunk of expenses. That was part of the appeal of the buy-in. Companies from Google to Uber to Tesla have all hyped up autonomous driving being around the corner for years, without much materializing. California is now investigating Tesla over its Autopilot feature’s safety. 

If Uber has left the AI driving argument behind, investors should focus on the state of its drivers. Uber has won several lawsuits allowing it to continue to classify its drivers as independent contractors, which keeps its labor expenses smaller. However, the company has a difficult needle to thread: it still faces multiple competitors, with consumers not locked into any one service. This puts pressure on it to keep prices lower, despite inflation and profitability demands. At the same time, labor pressures and shareholder demands intrinsically push for prices to rise. How high can Uber go without losing consumers? Can it continue its profit streak, or was this quarter a fluke?

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