Uber struggling ahead of IPO
Widely maligned taxi firm Uber is gearing up for its Initial Public Offering (IPO) next year which analysts predict will value the company at US$100bn. This is a tricky time for a company which has been involved in a series of public relations disasters in recent years, but a strong performance on the stock market in 2019 would help the company to push forward.
However, for that to happen the company needs to continue growing rapidly and reliably. Unfortunately for Dara Khosrowshahi, the incumbent CEO tasked with fixing Uber and making it appear financially disciplined, the latest figures from Q3 2018 are probably not that encouraging.
Whilst the company’s NET revenue was US$2.95bn, representing an increase of 38% year-on-year, the pace of annual growth has decelerated notably, from 63% in Q2 2018 and 70% in Q1 2018.
Similarly, NET losses fell to US$1.07bn from US$1.46bn over the course of a year, but the overall picture isn’t quite as rosy given that NET losses were at US$891m in Q2.
Another area where the numbers aren’t particularly encouraging concerns the gross number of bookings Uber received – the total amount it takes in before paying drivers and funding promotions, refunds, and government taxes and fees. As with the previous cases, the total number of bookings was up to US$12.7bn representing growth of 34% over the year. However, it is the pace of growth which is worrying, with 41% being recorded in Q2 and 55% in Q1 2018.
For a company which needs to persuade serious institutional investors that it is a serious profitable bet, this is not an ideal situation. The amount of money coming in is increasing, but investors are more concerned with future growth. Money today is good, but more money for longer in the future is better.
Uber’s diversity of business may help to offset some of the negativity. Nelson Chai, Uber’s chief financial officer, said: “We had another strong quarter for a business of our size and global scope. 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.”
This is all well and good, but Uber should be worried that the diversity of its revenue streams is getting ignored. The slowing pace of growth is what will be concentrated on – and quite rightly so from the point of view of investors. With overall growth slowing, offshoots such as UberEats and the company’s self-driving division become nothing more than expensive side projects which may or may not be profitable at some undetermined point in the future.
Keep an eye out for Uber making big moves over the next six months ahead of the IPO in an attempt to project confidence and profitability to investors.