The first earnings report for any recent IPO is a significant event. A strong report can set a positive tone for the stock and rekindle interest in the name. Of course, the opposite can also be true if the company disappoints. With that in mind, ride-sharing company Uber (UBER) is set to issue its 1Q19 results after the close and its report could have major implications regarding investor sentiment for both its stock and Lyft's (LYFT).
UBER's IPO obviously didn't live up to the lofty expectations assigned to it. A combination of market turbulence due to rising trade tensions with China and concerns about whether UBER's business model will eventually generate profits have worked against it.
While the issues surrounding trade are out of its control, UBER will have the opportunity to pitch its story to investors once again tonight. An encouraging report tonight would be a solid first step in restoring investor confidence.
In its IPO prospectus, the company provided guidance for Q1. Therefore, most of the "surprise factor" has been removed in terms of its quarterly results.
Specifically, it estimated that revenue would come in at $3.04-$3.10 bln, representing growth of about 19% at the mid-point. That is a sharp downturn from its recent growth rates. In FY17, revenue surged by 105%, followed by 43% growth in FY18.
As UBER grows into a multi-billion company, a slowdown in top-line growth isn't surprising or necessarily concerning on its own.
However, when combined with its rising costs and investments into new business lines, it creates a highly unprofitable business.
On that note, UBER also said it expects a net loss of ($1.11)-($1.0) bln and Adjusted EBITDA of ($954)-($847) mln.
There are a couple main drivers (no pun intended) to its substantial losses.
First, competitive pressures from Lyft (LYFT), driver incentives, and its decision to on-board large-volume restaurants for its Uber Eats service have taken a bite out of its take rate. In 2018, its platform take rate was 20%, but it expects take rate to decrease in the near term.
UBER's substantial investments in Uber Eats, Uber Freight, and autonomous driving technology are also impacting its profitability. This is reflected in its core platform contribution margin, which demonstrates the margin UBER generates after direct expenses. The metric has steadily declined, going from 18% in 1Q18 down to (3%) in 4Q18.
Generally speaking, the metric declines in periods of higher investment, so, it expects it to remain negative in the near term due to competition in ride-sharing and planned investments in Uber Eats.
Other Key Metrics to Monitor
- Bookings: Defined as the total dollar value of transactions, including taxes, tolls, and fees, etc. Since it excludes these costs, it can be considered a "cleaner" look at demand.
For Q1, UBER estimates that bookings increased by about 33% to $14.5 bln.
- Monthly Active Platform Consumers: This represents the number of unique consumers who completed a ride sharing or received an Uber Eats meal on its platform at least once in a given month, averaged over each month in the quarter.
UBER estimates that MAPC's grew by 33% yr/yr to 93 mln in Q1.
Since UBER already provided expected Q1 results in its IPO prospectus, the focus will primarily land on its guidance.
For Q2, analysts are projecting a loss per share of ($1.12) and revenue of $3.33 bln, equating to yr/yr growth of 20%. And for FY19, the current consensus is at a loss per share of ($3.32) and revenue of $13.86 bln.
Typically, we would expect that even modest upside guidance would translate into a positive catalyst when expectations are muted like this. But, in a case where so many investors have been burned by its IPO, we sense that it could take a more convincing outlook to really turn the tide in a meaningful way.
Keeping an Eye on LYFT
Back on May 7, LYFT released its Q1 results, posting a smaller-than-expected loss with revenue surging 95% to $776 mln vs. the $739 mln expectation. It also issued upside revenue guidance for both Q2 and FY19.
Click here to access its press release.
Despite the upside results and guidance, the stock still plummeted lower the following morning as investors were unswayed regarding their concerns over its path to profitability, competition with Uber, and its strategy revolving around autonomous driving.
However, if its bigger brother is able to follow suit and also provide an upbeat outlook, it could provide a sense that sentiment has swung too far on the negative side for these ride-sharing companies.