Uber can’t afford to be reckless with an impending IPO
When will Uber ever catch a break? After being mired with allegations of sexist work culture, price hiking, and the death of a pedestrian after being struck by an autonomous Uber vehicle earlier this year, the ride-hailing company is now beset by troubling Q3 results.
With a looming IPO on the horizon in 2019, can Uber turn its fortune around and put on a brave face for potential investors?
Another quarter, another round of losses
The company posted $1.07 billion in losses in the three months leading to September. This does not spell good news for a private company in the midst of plans for going public.
Figures from Uber showed that net losses widened sharply to Q2’s number of $891 million, BBC reported.
Tech Crunch (TC) explains that Uber isn’t required to disclose its financial results, but has done so for the past few quarters as it gears up to go public next year.
According to TC, Uber reported $404 million in losses up in Q2 2018, 32% more in losses than Q1’s results.
Despite all this, Q3 2018 losses were down 27% compared to the same period last year, according to Reuters.
The company reported $2.95 billion in revenue for Q3, which itself is an improvement of 38% year-over-year, and a 5% increase from the previous quarter.
According to Axios, gross bookings hit $12.7 billion for the quarter, up 34% year-over-year, and up 6% from Q2.
So while the company is making more sales and serving more customers, its profits remain in the red.
How is Lyft doing?
Lyft, Uber’s greatest rival in the their primary US market, is not doing too great either. It would seem that these arch nemeses are fighting an uphill battle for king of the hill, where both can’t seem to shake off their losses.
“In the US, which is our largest market, we’re in a big battle” with Lyft Inc., CEO Dara Khosrowshahi said, Bloomberg reported.
According to Crunchbase and based on Lyft data, the company “remains vastly unprofitable, and Uber is far larger. However, Lyft’s unprofitability is shrinking and its growth rate is impressive.”
-H1’17: $412 million net revenue, $255 million net loss, negative 61.9% net margin.
-H2’17: $648 million net revenue, $433 million net loss, negative 66.8% net margin.
-H1’18: $909 million net revenue, $373 million net loss, negative 41% net margin.
“For contrast, Uber’s second quarter alone saw $2.8 billion in net revenue (+63.3% year-over-year, +8.2% sequential quarter) and a net loss of $891 million,” Crunchbase notes.
Lyft is similarly seeking an IPO in 2019, possibly in H1, CNBC reported last month.
While Lyft is still smaller than Uber, and has much less capital to handle, they are slowly and strategically improving their profitability. At the moment, that’s still not enough for a realistic H1 2019 IPO window.
Lifeline in food delivery?
Uber is looking to its food delivery service, UberEATS, for a lifeline.
“As we look ahead to an IPO and beyond, we are investing in future growth across our platform, including in food, freight, electric bikes and scooters, and high-potential markets in India and the Middle East where we continue to solidify our leadership position,” chief financial officer Nelson Chai told Bloomberg.
A spokesman said Uber Eats generated $2.1 billion in gross bookings. That represents 17% of the company’s $12.7 billion in gross bookings last quarter.
Uber will try to sway potential investors by diversifying its service offerings to expand its brand.
Uber’s most recent valuation puts it at $76 billion, Reuters said.
It could be valued at $120 billion if it goes public next year, according to The Wall Street Journal, which reported details of proposals it said Uber received last month.
Has Uber got a winning card in Saudi?
Following the Khashoggi murder controversy, Uber has been hesitant about its ties to Saudi. The ride-hailing app had closed $3.5 billion in new funding from Saudi Arabia’s Public Investment Fund (PIF) in 2016, one of the largest ever witnessed in the tech industry.
The sprawling consequences of that mega-deal have yet to fully unfold, Bloomberg said. “Two years ago, the money helped Uber settle its war with Didi Chuxing in China, fortified its position against rival Lyft Inc. and empowered then Chief Executive Officer Travis Kalanick ahead of a long, pitched battle with investors who ultimately pushed him out. Now, the deal is drawing Uber into a global reckoning over the business world’s relationship with Saudi Arabia.”
Uber received another investment by PIF-backed Japan Softbank totaling $9.3 billion at the start of 2018, further deepening the California-based company’s relationship with the Kingdom.
With Uber so close to a planned IPO, desperate to prove itself as a lucrative financial opportunity to investors, reneging on Saudi’s $12 billion+ investment would be a death wish, especially in the Middle East.
Last month, MENA rival Careem received a $200 million investment from Saudi’s Prince Alwaleed Bin Talal, through his company Kingdom Holding, to give rise to a healthy competition between both Saudi-backed entities. With Careem already dominating in the market, Uber cannot afford to upset its Saudi backers.
Uber back in Abu Dhabi
Uber announced today the re-launch of its services in the UAE capital, in collaboration with the Department of Transport in Abu Dhabi – represented by the Integrated Transport Centre (ITC).
With Uber’s re-launch in Abu Dhabi, Emiratis will be able to drive on the Uber app using their private vehicles on a full-time or part-time basis.
Mohammed Darwish Al Qamzi, General Manager of ITC, said: “All private/public vehicles and driver partners are supervised under ITC’s regulations and meet the required standards and licensing requirements.”
Uber seems to have obliged Emiratization plans by highlighting the role of locals in its return. The prices of its rides have similarly changed to fit the ITC’s expectations.