Matthew Walker’s “Why We Sleep” Is Riddled with Scientific and Factual Errors. I like Matthew Walker’s book since I learned a lot about sleep from the book. I don’t know which side is correct, but it’s more important to give both sides.
Uber released their 2019 Q2 results and earnings today. Below are a few things that are worth noting to me
Uber defines take-rate as adjusted net revenue divided by Gross Bookings. Basically it is how much Uber takes out of your trip’s fare. Compared to Q2 2018, all take rates went down
|Q2 2018||Q2 2019|
|Ridesharing Take Rate||21.86%||18.99%|
|Uber Eats Take Rate||12.4%||9.95%|
|Total Core Platform Take Rate||20.96%||17.20%|
Part of the reason for the drop in take-rate is the rise of Excessive Driver Incentives. For instance, Uber Eats’ Excessive Driver Incentive this quarter went to 43% of the revenue, compared to 36% in Q2 2018.
Story of Growth?
It’s no secret that Uber is not profitable and likely won’t be for a while. Their story is one of growth, which is not the case in this quarter as far as I am concerned
|Gross Bookings||Core Platform Gross Bookings||Monthly Active Platform Consumers|
|Q2 2019 YoY Growth||29.67%||30.44%||30.26%|
|Q2 2018 YoY Growth||48.64%||47.92%||33%|
|Trips||Adjusted Net Revenue||Core Platform Adjusted Net Rev|
|Q2 2019 YoY Growth||35.02%||12%||7%|
|Q2 2018 YoY Growth||39.71%||58%||54%|
Every metric saw a smaller growth this quarter compared to last year. I do get the laws of big numbers, but when your story is one of growth, this may raise a few concerns.
Among important markets, Latin America saw a 24% decline this quarter despite Buenos Aires becoming the fifth largest city based on trips
Uber reported a $5.5 billion loss from Operations. If we take away the stock-based compensation, the loss is still $1.4 billion. While revenue grew by 31%, the operational loss increased by some 89%.
In my opinion, there is nothing in the earnings call from Uber that conveys something remotely close to a clear path to profitability. The story of growth is challenged in this quarter. Perhaps, this is just a bad quarter and the next ones will be better. Or worse. Who knows? Self-driving cars are years and years away, not even 5 years from now. Uber also faces heightened competition in food deliver like Post Mates or Door Dash, companies that attracts big private money as well.
Its filing is packed with a lot of information. Below are my take-aways so far from reading it
It’s doing a lot of things
Apart from the ride-hailing business that it has been known for, Uber also offers Uber Eats, Uber Freights and New Mobility, including e-bikes, e-scooters. Additionally, it has been investing in autonomous driving cars as well.
In the quarter ended December 31, 2018, the average wait time for a rider to be picked up by a Driver was five minutes.
The rapid growth and scale of our Ridesharing products, which to date have accounted for virtually all of our Personal Mobility offering, demonstrates the size of our opportunity:
• Revenue derived from our Ridesharing products grew from $3.5 billion in 2016 to $9.2 billion in 2018.
• Gross Bookings derived from our Ridesharing products grew from $18.8 billion in 2016 to $41.5 billion in 2018.
• Consumers traveled approximately 26 billion miles on our platform in 2018.
Our Uber Eatsoffering allows consumers to search for and discover local restaurants, order a meal at the touch of a button, and have the meal delivered reliably and quickly. We launched our Uber Eats app just over three years ago, and we believe that Uber Eats has grown to be the largest meal delivery platform in the world outside of China based on Gross Bookings. For the quarter ended December 31, 2018, the average delivery time was approximately 30 minutes.
Of the 91 million MAPCs on our platform, over 15 million received a meal using Uber Eats in the quarter ended December 31, 2018, tapping into our network of more than 220,000 restaurants in over 500 cities globally.
We serve shippers ranging from small- and medium-sized businesses to global enterprises by enabling them to create and tender shipments with a few clicks, secure capacity on demand with upfront pricing, and track those shipments in real-time from pickup to delivery. We believe that all of these factors represent significant efficiency improvements over traditional freight brokerage providers. Since Uber Freight’s public launch in the United States in May 2017, we have contracted with over 36,000 carriers that in aggregate have more than 400,000 drivers and have served over 1,000 shippers, including global enterprises such as Anheuser-Busch InBev, Niagara, Land O’Lakes, and Colgate-Palmolive. Uber Freight has grown to over $125 million in revenue for the quarter ended December 31, 2018
Impressive growth has slowed down
Really impressive growth, but a further look reveals that the growth seems to slow down
Their market map indicates that there is not much room for further horizontal expansion. What Uber can do is to dig deeper in each market to gain more market share. Uber said that as of the quarter ended December 31st, 2018, 74% of their trips and 52% of their Gross Bookings were from outside of the US.
It hasn’t made money operationally yet
Operationally, Uber hasn’t made any money. A positive sign is that their revenue grew faster than their operating loss. In 2018, their operating loss was more or less at the same level as it was in 2016 even though revenue grew significantly in the same period
Regulations, Regulations, Regulations
Throughout the filing, regulatory challenges are repeatedly mentioned and for a good reason. Uber’s struggle with authority bodies around the world has been well documented. Below is what Uber said specifically how regulations restrict their ride-sharing operations in a few countries
We plan to grow our current SAM by expanding further into our six near-term priority countries, Argentina, Germany, Italy, Japan, South Korea, and Spain, where our ability to grow our Ridesharing operations to scale is currently and may continue to be limited by significant regulatory restrictions
In 2018, we derived 24% of our Ridesharing Gross Bookings from five metropolitan areas – Los Angeles, New York City, and the San Francisco Bay Area in the United States; London in the United Kingdom; and São Paulo in Brazil. Over the same period, we generated 15% of our Ridesharing Gross Bookings from trips that either started or were completed at an airport, and we expect this percentage to increase in the future.
If some regulations are imposed in those important markets or around airports, however likely or unlikely, it may meaningfully affect Uber’s revenue.
Another aspect related to laws is how Uber classifies its drivers. Here is what it said specifically on the matter
Our business would be adversely affected if Drivers were classified as employees instead of independent contractors
If politicians in the markets where Uber has operations decide to force the company to treat its drivers as employees and give them minimum wage, it may be an issue
The first of the norms Uber laid out in “How We Approach The Future” section reads: “We do the right thing. Period”. Not really surprising, but a welcoming sign from a company that endured a public backlash symbolized by the hashtag #DeleteUber not so long ago.
In the filing, Uber promises to “release a transparency report, which will provide the public with data related to reports of sexual assaults and other safety incidents claimed to have occurred on our platform in the United States.” this year. Another welcoming sign.
Furthermore, unlike other tech companies, Uber won’t have dual share structure which is implemented to give the founders, usually, more voting rights. For example, Mark Zuckerberg has more than half of the voting rights at Facebook.
Their stakes in strategic partnerships
In August 2016, we completed the sale of our operations in China to Didi in exchange for an approximate 18.8% interest in Didi, which, based on our current information, we estimate to be 15.4% as of September 30, 2018. In February 2018, we consummated a joint venture with Yandex whereby we and Yandex each contributed our operations in Russia/CIS to a joint venture which we refer to as the Yandex.Taxi joint venture. We received a 38.0% interest in the Yandex.Taxi joint venture at the closing of the transaction, which, based on our currently available information, we estimate to be 38.0% as of December 31, 2018. In March 2018, we completed the sale of our operations in Southeast Asia to Grab in exchange for a 30.0% interest in Grab, which, based on our currently available information, we estimate to be 23.2% as of December 31, 2018. We measure our interest in each of our minority-owned affiliates based on the outstanding shares of capital stock on an as-converted basis but without taking into account securities exercisable or exchangeable for shares of capital stock or its equivalent (including outstanding vested or unvested stock-based awards and any reserved but unissued stock-based awards under any equity incentive plan of our minority-owned affiliates).
Its business deals with Google
According to the filing, Uber paid Google from Jan 1, 2016 through December 31, 2018, $631 million, $70 million and $58 million for Marketing & Advertising (Ads), technology infrastructure & enterprise services (which I believe is Google Cloud Platform), and Google Maps respectively.