How Uber Coasted Past a Billion-Dollar Quarterly Loss

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The real question for Uber (NYSE: UBER) is when (or whether) it will be able to use its massive network to generate a profit. The answer it delivered in its first earnings report as a public company was "not yet, and probably not for a while." But weighed against its steep bottom-line loss were its adequate top-line growth of 20% and gross bookings that rose even more.

In this segment from Motley Fool Money, host Chris Hill and senior analysts Ron Gross and Jason Moser discuss the potential of the company's ridesharing, new mobility, Uber Eats, and Uber Freight opportunities; the impact of price competition; the complicated business of Uber Eats; investors' excessive optimism about autonomous vehicles; and how to value a business that makes no money.

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This video was recorded on May 31, 2019.

Chris Hill: But we begin with Uber's first report as a public company, and it was a doozy. By that, I mean Uber lost $1 billion in just 90 days. Jason, we've seen unprofitable start-ups lose money, and investors will still buy the shares. You look at the stock, Uber's basically flat on Friday. That tells me, among other things, that they're not really doing anything just yet to get Wall Street excited.

Jason Moser: I mean, I think that's a fair statement. I think the story for investors, when it comes to Uber, it's figuring out all of the different ways they can leverage this network to make money. Today, that's the rideshare business. That's new mobility, like scooters, the Uber Eats business, Uber Freight. These are all pieces to that overall puzzle.

For me, I mean, the 20% top-line growth, maybe my expectations were just a little bit higher, that seemed like nothing to write home about. But by the same token, gross bookings were up 34% to $14.6 billion. Trips grew 36%. That's good as well. I think if you look at the call, certainly the theme was Uber Eats. I think that's where they're really seeing the biggest opportunity, at least in the near term. Gross bookings for that side of the business were $3.1 billion, it was up 117% excluding currency. They have 220,000 restaurants on board with that network. The thing is, with food delivery, the economics of it can be tricky. There are expenses in maintaining that network. It's not always a no-brainer for the restaurants, either. We're seeing Grubhub dealing with some of those challenges as more of the pure play there.

I mean, Uber is an impressive businesses, it's an impressive network, I think, with a lot of potential. They're going to have to figure out as they go along a way to become profitable with these four main drivers. I know a lot of people are looking toward those self-driving cars thinking that's really the pot of gold at the end of the rainbow. You just have to recognize that's still at least a decade away. And I feel like people who were thinking that we'll be surrounded by these self-driving cars in the next few years, it's just a naive point of view in my opinion. I could be wrong, of course.

Ron Gross: I saw some interesting analyst comments that price competition with Lyft might be dying down, which would obviously be good for them. It would increase take rates, which is the amount of money that Uber can keep after paying drivers. So, profitability must be right around the corner, if the corner's on the moon. When you don't have profits, you talk about the path to profitability. That's the big buzzword. "Path to profitability" for me is just a euphemism for "we don't make any money." I don't know how to value the stock if they don't make money.

Hill: To that point, you go back to the top-line revenue. Jason, I think if Uber had come out in this quarter and grown top-line revenue 40%, 50%, something like that, I think that gets Wall Street a little bit more accepted. As you said, 20%, that's fine, but it's only fine.

Moser: It is. And if you compare that 20% to the growth that we were talking about with gross bookings and rides, I think that implies that perhaps there is still some price competition going on out there. I don't know that Uber is ever going to be a business that can really realize much in the way of pricing power. I don't know that that's really a point, though. It's ultimately about the network effect and figuring out the different ways they can exploit this network on a global scale. I think they're doing the right things. To Ron's point, the path to profitability is very unclear. I think it's going to take a long time to get there. Thankfully for investors today, the stock isn't really absurdly priced if you look at it on a price-to-sales metric. But you also have to take that with a grain of salt and understand that profitability is going to be quite some time away.

Gross: Last comment on competition. You see Lyft talking about, "We're going to start to compete on brand, not on price." Good luck there! I have a feeling that won't stick. We're going to continue to see promotions for a long time to come.

Moser: I think you're right. I started asking myself this question in regard to Uber and Lyft. I don't know that there's necessarily as a brand advantage to either one. I started asking myself about brand disloyalty. Go back to when Uber was having all of those culture issues. That sent a lot of people fleeing and using Lyft as an alternative there. Here at Fool HQ, we use Lyft as our provider vs. Uber. I wonder in some cases, when a company really screws up, maybe there's not the brand loyalty, but there could be brand disloyalty that comes into play that could affect either one of these businesses.

Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool recommends GRUB and Uber Technologies. The Motley Fool has a disclosure policy.