Company / Analytics

Analytics, 07 May 2021

Uber earnings & Outlook

Early this week, Uber reported earnings that beat estimates on the top line and dramatically improved its net losses in its first quarter, though it missed on revenue. Shares initially gained before dipping more than 4.5%.

Over the years, Uber has fought with regulators and drivers to keep drivers being classified as employees, instead of contractors. After it lost the battle in the UK where a court ruled that drivers should be classified as employees, investors finally got a glimpse of the financial reasons on Wednesday, when Uber said it has set aside $600 million for UK drivers.

Uber Earnings

Ride-hailing companies are beginning to bounce back from their pandemic lows as coronavirus vaccines roll out and restrictions are eased. But many investors still find it challenging to compare year-over-year numbers from these companies since the outbreak of COVID which severely restricted travel, and affected operations of these companies.

Uber reported earnings Wednesday showed revenue of $2.90 billion compared to the $3.29 billion analysts expected. Earnings were 6 cents, compared to 54 cents analysts expected.

Still, Uber’s net loss was $108 million which is a tremendous improvement from a $968 million loss in its fourth quarter of 2020. But that was largely due to a $1.6 billion gain from the sale of its self-driving unit, ATG. Uber’s operating loss was still high for the quarter at more than $1.5 billion.

The company reaffirmed its expectation to reach profitability on an adjusted EBITDA basis by the end of this year. Its adjusted EBITDA loss was $359 million, which improved by $95 million from the prior quarter. EBITDA refers to earnings before interest, taxes, depreciation, and amortization.

The company said its mobility take rate is expected to decline about 20% in the second quarter. “For the remainder of the year, I would remind you that delivery gross bookings year-over-year comparisons will become tougher as we continue to face significant forecasting uncertainty in predicting post-reopening consumer behavior,” CFO Nelson Chai said on a call with investors.

Performance by segment

In Q1 2021, mobility (gross bookings) was down 38% from a year, $6.77 billion while delivery (gross bookings) was up 166%, at $12.46 billion, up 166% from a year ago.

Delivery revenue also outperformed its core ride-hailing business at $1.7 billion, compared with $853 million. The company has relied on its delivery services to make up for lost transit during the pandemic. Uber said the Eats segment revenue was up 28% quarter over quarter.

In an update to shareholders, the company said that merchants on Uber Eats exceeded 700,000 in the first quarter, with the additions of Mr. Beast Burger, Rite Aid, and Smoothie King. The company also agreed with Gopuff to offer more convenience-store and grocery items starting in June.

Ride-hailing trends are starting to improve in some markets, and like its competitor, Lyft, Uber is facing an immediate and growing need for more drivers, struggling to meet demand following Covid vaccines and an easing of restrictions. Uber said it has approximately 3.5 million drivers and couriers on its platform, up 4% quarter over quarter but still down 22% year over year. The company said last month it would spend $250 million on a one-time stimulus aimed at getting drivers back on the road.

Uber sets aside $600 million for U.K. drivers as a result of a court ruling

Uber faced pressure during the quarter in the U.K. after that country’s Supreme Court upheld a ruling that its drivers are workers, not independent contractors. The company said it took a $600 million hit to ride-hailing revenue “due to the accrual made for the resolution of historical claims in the UK relating to the classification of drivers.”

The March ruling meant that Uber would need to classify tens of thousands of drivers in the U.K. as employees and will have to pay claims of back pay due from British drivers in the case, including holiday pay, wages to equal the minimum, and, potentially, pension contributions. That would be on top of what the company already paid the drivers in the 2016 case.

That puts a dollar figure on a longstanding concern about Uber and the other “gig work” companies — what it would look like financially if they had to treat drivers as employees. And it is nothing to sneeze at, blowing away the $200 million Uber and other gig companies spent to pass a new law in California in their quest for a “third way” for employment law. That win could be moot, though, as President Joe Biden’s new secretary of the Labor Department said last week drivers should receive the benefits of employment in most cases, spooking some investors.

The company’s standard mantra when asked about the possible costs of classifying its drivers as employees have been to say that they will pass on the costs to its users, which executives said again during Wednesday’s call. They noted that they did see a slight increase in costs in the quarter, because of driver benefits, and they were able to pass those costs on to riders, with no impact on demand. “We are leaning in, with investments to support the recovery mobility and growth initiatives and delivery,” said Uber Chief Financial Officer Nelson Chai, noting that the ride-hailing company plans to invest in its driver base, and increase its spending in general, marketing, and administrative costs, and in R&D. Chai estimated Uber will spend between $450 million and $480 million in the second quarter, after a drop in spending last quarter. Also included will be spending on marketing to attract new drivers, as it faces driver shortages in the U.S. and Mexico.

At the same time, Chai noted that the company continues to face “significant forecasting uncertainty and predicting posts reopening consumer behavior.” Overall, investors are not happy with the higher spending, especially after the classification of drivers as employees in the UK. There is uncertainty that other jurisdictions, including the United States might follow the UK example. These uncertainties will continue to affect Uber and other gig economy stocks, whose contractor-based business models are again at risk. But at least investors now have an idea of how much drivers being classified as employees could cost the company.

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