Daily Management Review

Uber's quarterly loss exceeded $ 800 million


12/20/2016


In III quarter of 2016, Uber taxi service recorded an adjusted loss of more than $ 800 million due to price wars with Lyft in the United States and high costs of new initiatives, according to the Financial Times and its sources. The newspaper notes that the situation in the company is gradually improving as Uber abandoned fighting for the Chinese market with Didi Chuxing.



Uber is not a public company, so its financial results are revealed. However, every three months its financial director Gautam Gupta arranges a conference call to report to shareholders. According to The Information, Uber loss before taxes, interest, depreciation and amortization (negative EBITDA) for the year could be 25% higher than in 2015, and exceed $ 2.8 billion. During the first 9 months of 2016, the company has lost more than $ 2.2 billion.

Uber’s revenue continues to grow. Even after leaving the Chinese market in January - September, it reached $ 3.76 billion, and $ 5.5 billion are expected by the end of 2016.

Total cost of the trips made through Uber, increased in the III quarter to $ 5.4 billion from $ 5 billion in April – June, and $ 3.8 billion in January - March. Net revenue (money received after payments to Uber drivers) increased in July - September to $ 1.7 billion from $ 1.1 billion in the II quarter and $ 960 million in the first quarter.

In the light of Uber’s possible IPO, growth investor of Redpoint Ventures Fund Mahesh Vellanki assessed financial performance of the company.

Uber is growing incredibly fast, but so do losses. Using information from public sources, he collected data on Uber’s income statements, obtained thanks to a couple of leaks. Of course, these figures do not display a full picture, so that Vellanki also had to make his own calculations. Knowing pattern of profits and expenses of the company and its growth trajectory, he attempted to roughly understand how Uber’s IPO would look in 2017.

The growth rate in 2013, 2014, 2015 and 2016 amounted to approximately 537%, 332%, 280% and 194%, respectively. For 2015, net income increased almost four-fold to $ 1.7 billion, but losses amounted to $ 1.9 billion. In the second quarter of 2016, net income increased by 15%, and the analyst suggested that the third and fourth quarter would bring optimistic 20 % of growth. Thus, Vellanki assessed net income for 2016 at around $ 5 billion - that is, every year it increases by about three times. Estimated net profit will cost between $ 2.5-3 billion.

Given the growth rate, he expects an increase in net income by 100-150% in 2017. Thus, it will be $ 10-12.5 billion and losses can only be assumed.

Suppose that Uber would receive a net income of $ 12.5 billion in 2017. At very optimistic 10 times-multiplier, Uber could cost $ 125 billion. Even with a modest six-fold multiplier, the company would still be worth $ 75 billion - significantly more expensive than its current private estimates of $68 bln.

It is difficult to assess a company with such a speedy growth. Its evaluation depends not only on growth but also on how well its business will be going in the long term. Vellanki offers betting on its popularity, and investors’ satisfaction with these growth indicators. However, this means that Uber will have to maintain the same strong pace without any hitches, and convince investors that it is possible to achieve real profitability of the company. Global market of private drivers is saturated, and the company has to put up with legislative limitations and initially low profitability. Given the dynamics, it would be interesting to see how Uber will offer its shares to people and will justify its assessment. 

source: ft.com, theinformation.com, mahesh-vc.com






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