San Francisco Chronicle - (Sunday)
As Uber prepares for IPO, losses pile up
Technology companies rarely make money before they go public. Twitter was unprofitable when it listed on the stock market. So were Snap, Spotify and SurveyMonkey.
For Uber, the question as the ride-hailing giant prepares for a public offering is even bigger than whether it can make money. That’s because the company, the most prominent tech startup of its generation, will set the bar for other well-known tech companies like Slack and Lyft as they also stampede toward the stock market this year.
So far, Uber is not doing itself any favors on profits.
The San Francisco company reported Friday that it had narrowed its net loss in the fourth quarter of 2018 from a year earlier. But excluding certain one-time items, including the sale of some of its businesses, Uber’s losses for the quarter rose 88 percent compared with the previous year, to $842 million.
The losses were a result of Uber increasing its spending as it tries to outmuscle competitors, many of which have intensified their efforts to add riders and drivers. Uber has responded by offering bigger incentives and more promotions to fend off rivals like DoorDash, Lyft and other ride-hailing and food-delivery services.
Uber made its financial disclosure as it hurtles toward what is set to be one of the biggestever public offerings by a tech company. A transportation colossus, Uber was privately valued at more than $70 billion last year, and proposals from investment bankers suggest that it could be worth as much as $120 billion after going public. The share sale will create enormous windfalls for Uber’s many investors, and for its founders and early employees.
As a private company, Uber is not required to disclose financial results. But it has regularly done so over the past two years to inform investors about its business, and perhaps to keep the depth of its losses from coming as a surprise later.
The latest set of figures, probably Uber’s last as a private company, will be closely scrutinized. Many investors initially give young and fast-growing tech startups a pass for losing money, but questions about whether such companies can ultimately be profitable eventually catch up with them. Investors criticized Twitter for racking up losses before it finally began to make money last year, and they have pushed down Snap’s share price since its public offering, partly because the company is still deeply unprofitable.
In a statement, Uber Chief Financial Officer Nelson Chai did not address the company’s losses. He said Uber had “maintained category leadership” in its ridehailing business and he noted other bright spots, including the company’s freight-management business and nascent e-bike and scooter program.
Uber has a long history of spending large sums of money. Ride-hailing is inherently an expensive business that requires companies to expand into new markets for growth, pay to recruit drivers and lower prices to grab business away from competitors.
CEO Dara Khosrowshahi has been under pressure to pare its losses, and the company has pulled out of money-losing markets like Russia and Southeast Asia.
Some of the company’s losses have been overshadowed by its explosive growth. In 2018, Uber increased its total bookings — what it charges customers for rides and food delivery — to $50 billion, up 45 percent from 2017. Net revenue was $11.3 billion, a 43 percent increase.
The company’s net revenue for last year’s fourth quarter was $3 billion, a 25 percent increase compared with a year earlier, and its gross bookings jumped 37 percent, to $14.2 billion. The company has $6.4 billion in cash and its net loss was $865 million.
But Uber’s profit margins have declined as it cut prices to match competitors and spent money on expanding its fooddelivery business, Uber Eats. The margins are also smaller on Uber Eats orders because the company pays commissions to restaurants as well as delivery drivers.
Uber’s self-driving car program, which will probably not yield revenue for years, continues to burn cash. The company returned its autonomous vehicles to public roads in December after a 10-month hiatus prompted by one of its vehicles fatally striking a pedestrian in Arizona.
Kate Conger and Mike Isaac are New York Times writers.