Uber trumps cost-cutting

Dara Khosrowshahi wants us all to believe there are two Ubers. One, the original bruiser, losing more than $1bn a quarter to protect its market in ride shares and food delivery while going after new areas such as helicopter rides, online groceries and fintech. The other, a careful, regulation-respecting, expense-cutting business that abandons cities where return on investment is too low, checking all profit and loss items to trim losses.

Third-quarter earnings show efforts to reconcile the two sides of the business had not much success. Uber thinks it can achieve a version of profitability and reach positive earnings before interest, taxes, depreciation and amortisation (ebitda) on an adjusted basis by 2021. This, of course, will depend on the adjustments. Uber’s business is still far from financially sustainable.

Promised economies of scale have yet to appear. Uber’s original plan was to subsidise its business until it became so vast it squashed competition and price per ride or delivery fell. This has not happened. Uber had net losses of more than $7bn in 2019. Even if stock-based compensation was removed, the business would not break even. If Uber treat drivers in California as staff, not contractors, rising costs will push its goal even further away.

There is evidence that growth at all costs has been tweaked in favour of reducing cash burn. Revenue of $3.8bn in the third quarter was up 30% on 2018, slightly outpacing total bookings and suggesting it is charging higher rates for its services. Uber is still excellent at raising money. With $12.7bn in the bank, covering cash needs for more than three years based on losses in the last quarter, it has bought itself time to try to hit its ebitda target.

Yet there is still a question over the long-term sustainability of the business. The share price fell more than a quarter since listing in May. When a lock-up expires on Wednesday expect further losses. /London, November 5

© The Financial Times 2019