Notes from Uber’s earnings call

Uber released their 2019 Q2 results and earnings today. Below are a few things that are worth noting to me

Take rate

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 2018Q2 2019
Ridesharing Take Rate21.86%18.99%
Uber Eats Take Rate12.4%9.95%
Total Core Platform Take Rate20.96%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.

Source: Uber

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 BookingsCore Platform Gross BookingsMonthly Active Platform Consumers
Q2 2019 YoY Growth29.67%30.44%30.26%
Q2 2018 YoY Growth48.64%47.92%33%

TripsAdjusted Net RevenueCore Platform Adjusted Net Rev
Q2 2019 YoY Growth35.02%12%7%
Q2 2018 YoY Growth39.71%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

Spectacular loss

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%.

Thoughts

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.

Weekly readings – 8th June 2019

Uber’s Path of Destruction. A critical great read on the challenges that Uber faces due to its business model.

Life hacks from Marcus Aurelius: How Stoicism can help us

Underwater Drones Nearly Triple Data From the Ocean Floor. Fascinating use of drones to explore what is still largely a mystery to us.

An interesting conversation with Naval on various topics such as AI, reading, how to be happy and so on. I do agree with him on AI, yet disagree with him on the way he gave an example of socialism. Nonetheless, it is a conversation worth listening to while driving, on a bus or in a gym

The NBA Finals Have Never Seen a Coach Like Nick Nurse. I find it interesting since I never knew about Nick Nurse, yet he has done a marvelous job guiding Toronto Raptors to one win away from the NBA championship. The team has played really well against the defending champions. His journey in England and learning his crafts in a country where basketball isn’t remotely popular is captivating.

Uber’s Earnings – Is It On The Right Track?

Uber released its first quarterly earnings as a publicly traded company. Let’s take a look how they did.

First of all, I have to say that reading Uber’s earnings isn’t a straightforward task. They make it incredibly confusing and complex. For instance, there are multiple variables concerning the company’s money-generating ability such as Bookings, Revenue, Core Platform Adjusted Net Revenue, Adjusted Net Revenue. I wish they could make it easier for the audience to absorb the information.

The company lost more than $1bn in the first quarter mainly due to bigger cost of revenue and S&M expense

Source: Uber

Bookings, revenue and net revenue increased, but at a much slower clip than Q1 2018

Source: Uber
Source: Uber
Source: Uber

Monthly trips per user are stagnant while contribution margin is negative

Source: Uber
Source: Uber

Uber Eats revenue grew by 89%, but Uber tripled the driver incentives for the segment

Source: Uber
Source: Uber

In terms of segments, Vehicle Solutions and Latin America market performed poorly compared to Q1 2018

Source: Uber

Ride-sharing’s revenue grew while incentives contracted; which is good news

Source: Uber

Thoughts

Uber seems to be a story of contradiction. While the CEO claimed that “Sometimes simplicity is a beautiful thing”, the business, by no means, is presented in a simple fashion. It’s complex and the terms used by the executives don’t necessarily facilitate easy understanding.

Uber CEO also said “Our job is to grow fast at scale and more efficiently for a long, long time.” Bookings, users and all metrics increased indeed. Yet, as presented above, they grew at a slower clip than one year ago. The tripled incentives used to fuel growth in Uber Eats aren’t exactly evidence for the efficiency he mentioned, and neither is the S&M expense.

The company lost $1bn and the business model doesn’t seem to change much. Also, I don’t believe in the short term feasibility of autonomous vehicles’ impact on Uber. It’s unclear how the company can tackle the profitability question. On the earnings call, Dara mentioned competing on brand and products instead of pricing with competitors. Well, whether that plan comes into beings still remains to be seen.

Are autonomous vehicles the answer to many businesses’ problems?

It’s not uncommon nowadays that businesses mention autonomous vehicles as an opportunity for growth and profitability. Unless their vehicles are self-driven, ride-sharing services such as Lyft or Uber don’t particularly promise a sure path to profitability at the moment. In an article published last week, the CEO of AT&T mentioned self-driving cars as a reason for his optimism

Even Warren Buffett quails at the prospect of competing in such a powerful field of rivals. “Everybody has just got two eyeballs, and they’ve got x hours of discretionary time … maybe four or five hours a day,” he said recently at a charity event, speaking generally about the entertainment industry. “You’ve got some very, very, very big players that are going to fight over those eyeballs. The eyeballs aren’t going to double. You have very smart people with lots of resources trying to figure out how to grab another half-hour of your time.” His assessment: “I would not want to play in that game myself. That’s too tough for me.”

Any business that Buffett wants to avoid sounds unpromising, but Stephenson rejects the legendary investor’s premise. Acknowledging that “there are only 16 waking hours in the day,” he says, “Well, we haven’t filled up the 16 hours yet.” He nods toward his office window over Commerce Street with its busy traffic, which he says will ease when 5G networks enable autonomous cars. “When you have the lion’s share of those cars autonomous, for the average person that’s another two hours of availability of screen time, consuming video.”

AT&T Has Become a New Kind of Media Giant

Are autonomous cars the answer though?

Let’s say, generously speaking, 10 years from now all the cars would be self-driving. What would it look like? If the cars don’t carry passengers, without drivers, where would the cars go? Would all the cars keep driving endlessly till they are called to pick up passengers? Would the cars park on the street and if so, would there be enough space to accommodate all the cars? If the cars park in a garage somewhere, how would the garages be planned and constructed so that the garages are all well spread throughout a decently big area?

There can be many more questions that would result from having mainly autonomous vehicles on the streets. I can’t think of them all, but you get the idea. Right now, we don’t even have many on the streets yet, let alone answering questions and tackling problems that ensue the arrival of self-driving cars. Additionally, I personally don’t believe that we can have all cars or the majority of the cars self-driven on the streets in the next 10 years. I wrote something about it here.

If it takes a long time for self-driving cars to be realized and populated, can the likes of AT&T, Uber or Lyft wait till that time? AT&T’s debt is almost $200 billion and as Warren Buffett said above, and I agreed with his view, that the competition for eyeballs wasn’t going to get any easier. Uber or Lyft keeps losing money operationally and will be expected to continue that path, unless self-driving cars come along. 10-15 years of losing millions, if not billions, of dollars every year doesn’t seem a sort of business that investors like. And before any comparison between Uber and Amazon is raised, the two are far from being similar to each other. Look at their respective operating income.

Source: Wall Street Journal

Obviously, some years from now, it is possible that I may be embarrassed for saying all this and the fine folks in Silicon Valley or that somewhere in the US can deliver the miracle. Until then, I prefer being pragmatic to venturing out too far into fiction and imagination.

Weekly readings 25th May 2019

Inside Google’s Civil War. An interesting story on the internal rift between employees and management over controversial projects.

What makes ramen noodles so special? As a fanatical fan of Japanese food, it’s a very interesting read on one of the more known Japanese dishes

Lower pay and higher costs: The downside of Lyft’s car rental program. The ugly truth about ride-sharing business.

Skift Analysis: Amazon’s Travel Strategy Comes Into Focus

Shark Tank deep dive: A data analysis of all 10 seasons. I am not a huge fan of the show, but it’s cool to look at it from the data perspective

Carmageddon Sinks Tesla’s Bonds. I have been pretty bearish on Tesla and this article doesn’t do much to change my opinion.

An incredible story about a woman who was brave and incredible enough to go out on her own terms

How Data (and Some Breathtaking Soccer) Brought Liverpool to the Cusp of Glory. A fascinating read on how Liverpool used data to enable performance on the pitch.

The Legal Argument That Could Destroy Uber. A really interesting read on what can be a serious legal threat to Uber.

Weekly readings 18th May 2019

How does WeWork make money? A good write-up on WeWork and its business model.

Saying goodbye to Microsoft. A personal account of the author’s time at Microsoft. Sometimes, the grass on the other side isn’t as green as we thought it was

The professor who beat roulette. A very nice piece on a relatively less known subject and historical figure.

Many Hospitals Charge Double or Even Triple What Medicare Would Pay. Read it and let it sink in. The insane healthcare system here never ceases to amaze me

The Great Hanoi Rat Massacre of 1902 Did Not Go as Planned. A case of incentives leading to unwanted outcomes.

There is more CO2 in the atmosphere today than any point since the evolution of humans.

How Uber Makes — And Loses — Money. Hats off to CBInsights. They delivered a really good piece on Uber.

Dark theme. A cool post on how to design a dark mode nicely

Introducing Translatotron: An End-to-End Speech-to-Speech Translation Model. This is one of the things I like most about Google. Hope the service will be widely available soon.

Editorial: Why Apple created Apple TV+ rather than buying Netflix. I can see the merits of the “Apple should by Netflix” argument, yet I agree with the blog post.

The State of Gen Z. A nice profiling of Generation Z. The part on their slangs is pretty interesting.

Weekly readings – 11th May 2019

Charlie Munger, Unplugged. I try to read as much as possible about Charlie Munger. This is a great interview with him. The part I like most about the interview is when Charlie talked about how he read till he slept.

In News Industry, a Stark Divide Between Haves and Have-Nots. An insightful and fascinating piece on the struggle of newspapers as a whole to generate digital revenue to offset the loss in ads dollars. Only a few exceptions and the Big Three (WSJ, The Times and The Post) seem to have managed reasonably well.

Uber Wants to Be the Uber of Everything—But Can It Make a Profit? The “we are going to be the Amazon of transportation” narrative will be used a lot ahead of Uber’s IPO. I can see some value in that, but frankly, I don’t believe that is the case at the moment. The level of competition that Amazon had to face back in the day and Uber has to face now is likely different. I doubt Amazon faced a lot of legal challenges as Uber has had up to now. Plus, the economics of the two companies aren’t the same. Look at the chart below and see if there is any similarity between the two

Eating breakfast is not a good weight loss strategy, scientists confirm.

Can Bird build a better scooter before it runs out of cash? A revealing piece on the scooter business.

Ilargi: Renewables Are Dead. I find renewables polarizing as a subject. There are fans on each side of the argument. No matter what, I guess if we hadn’t tried, we wouldn’t have known what we know now.

New Data: The Airbnb Advantage. According to AirBnb, New York, London and Paris make up less than 3% of its total listings and no city makes up more than 1% of the listings.

Ethiopia’s garment workers make clothes for Gap, H&M and Levi’s but are the world’s lowest paid. Workers in sweat shops in Ethiopia got paid $26/month. The same figure in Vietnam is $180/month.

India’s water crisis is already here. Climate change will compound it.