Uber reported profits of $1.4bn for the second quarter of 2021 after seeing the value of its investments in China’s leading ride-hailing service, Didi, and US self-driving start-up Aurora grow. But the underlying picture is not so positive, and with total losses of $25bn from 2016 to the start of this year, analysts doubt whether the positive results are a step on the path to “sustained profitability” for the company, which has yet to find a way to translate its disruptive business model into financial success.
Revenue for the ride-hailing and food delivery company for the three months from April-June 2021 was $3.93bn, more than double its performance of the same quarter from 2020 when the Covid-19 pandemic severely disrupted its operations.
The business also benefited from unrealised gains of $1.4bn and $471m respectively in its investments in Didi and Aurora, allowing it to show a profit on the balance sheet. Investors, though, will be focusing on the company’s EBITDA – adjusted earnings before interest, taxes, depreciation and amortisation. Even with Uber’s lengthy definition of EBITDA exclusions – covering everything from restructuring costs to even depreciation and amortisation themselves – its second-quarter loss was $509m.
Path to profitability for Uber?
When Uber submitted its SEC filing in 2019 ahead of its IPO, there was a cautionary warning for investors. It simply read: “We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability.”
Senior analyst for technology thematic research at GlobalData, Laura Petrone, says underlying losses have been stacking up because the company is still subsidising rides and providing incentives to its drivers. “Two years after going public, Uber still struggles to get sustained profitability, with shares trading almost 8% below its IPO price,” Petrone told Tech Monitor. “The company recorded an adjusted loss of $509m in Q2 with spending being exceptionally high, as it needed to address drivers shortages by offering incentives.”
Uber’s ride-hailing rival Lyft reported its first adjusted quarterly profit at the end of June. However, “the path towards sustained profitability [for Uber] appears bumpy and with many unknowns”, Petrone says. Adding: “The Delta variant, which is on the rise in several countries, including the US, is one of them, as a wider outbreak could threaten demand but also cause a new driver shortage.”
Uber profitability: a trail of staggering losses
Uber’s model of rapid growth and expansion has seen it post hefty losses and is a major reason why it trails behind Lyft in the quest for profitability. Its biggest losses came in 2019, totalling $8.5bn for the year, with a staggering $5.24bn in Q2 alone.
Petrone says that regulation remains one of the biggest hurdles to Uber's path to profitability. "Lawmakers are discussing granting gig workers more rights and better working conditions," she says. "The US Congress is currently debating whether gig workers can bargain collectively. In general, the gig-economy business model as it stands is being questioned around the world – see also the UK Supreme Court ruling of early this year – and this could play into the drivers' hands in a time when their negotiating power has never been higher due to a drivers shortage.
"Uber might be forced to offer more benefits and better working conditions to its drivers, raising further doubts about the reliability of its business model long term."
Uber's food delivery division, Uber Eats, has been a relative success story for the company, outperforming its taxi business during the pandemic. At the start of 2021, CEO Dara Khosrowshahi revealed that Uber had broader expansion plans to include providing technology platforms for city transit networks, but further details have yet to emerge.
"Uber's strategy of expanding beyond rides worked well during lockdown," Petrone says. "And as challenges in the ride-sharing business persist, the company is betting on expanding into different businesses including freight, as well as grocery and alcohol delivery, through a number of acquisitions. But long-term it's still not clear how much this expansion will pay off."
End of the autonomous road?
One of the company's strategies had appeared to be the development of autonomous vehicles to replace the human driver. In December Uber announced it was selling its self-driving division to Aurora, a deal which saw it take a 26% stake in the start-up. Though the value of this investment has grown, partnerships with other autonomous vehicle companies have yet to bear fruit.
"Investment in driverless cars only adds to this unpredictability," Petrone says. "Uber had to abandon plans to develop its own self-driving cars due to the enormous cash drain, but has recently invested in China's Didi and autonomous technology company Aurora. However Didi faces unprecedented regulatory pressure from Beijing and, more generally, a future when robo-taxis will reach mass-market adoption still seems quite far away."