Financial Pros Think UBER Could Finally Turn a Profit

Remember when we talked about Carvana (CVNA) coming up with a pretty dumb business model?

Uber Technologies (UBER) did the opposite.

Leveraging technology and ride-sharing utilization, the popular app revolutionized a seemingly benign industry.

Yet, for all its growth and glory, the company hasn’t turned a profit in years…until now.

With earnings coming up in early August, analysts predict the company could finally turn a corner.

But is that enough to make this once high-flyer investable?

Uber’s Business

Can you remember life before Uber when you had to take a…dare we say it…taxi?

Today, the California conglomerate operates in 70 countries and over 10,000 cities around the world.

With their simple app, users can call for on-demand food or package delivery, as well as their core ride-sharing.

Source: Uber Investor Relations Q1 Presentation

The company’s proprietary technology matches drivers with riders or delivery orders using a network of freelance and contract drivers. This allowed them to circumvent hiring drivers directly, while scaling quickly.

With immense growth came equally-sized controversy. Uber ticked off a lot of traditional cab companies, who initially sued and lobbied to keep Uber out of their backyards.

States’ like California accused the company of flaunting labor laws, as did many countries around the world.

For each ride or delivery, drivers and Uber split a percentage of the take.

Despite incredibly successful adoption and growth, the company barely generates cash from operations and hasn’t turned a profit since 2018.

Financials

Source: Stock Analysis

Uber’s remarkable growth hasn’t been without missteps. 

In 2014, the company tried to enter China but faced fierce competition from local rival Didi, to whom Uber eventually sold its Chinese operations.

While gross profits and margins have done well, they’ve contracted in recent years as the company’s been forced to pay drivers more while maintaining rates as competition increased.

However, operating and profit margins have begun to shrink, bordering on profitability.

The company holds almost $5 billion in net debt, costing it $168 million in interest expenses annually, which, ironically, would have helped them turn an operating profit in Q4 2022.

Valuation

Source: Stock Analysis

While Uber doesn’t generate a profit, neither do any of its app based peers save for the established Domino’s Pizza (DPZ).

Interestingly, DPZ has a higher price-to-sales ratio than Uber and Lyft (LYFT). But, it’s got the best, and most reasonable, price-to-cash flow ratio.

Growth

Source: Seeking Alpha

Dominos may be profitable, but it doesn’t grow at anywhere near the rate of Uber, Lyft, DoorDash (DASH), or Grab Holdings (GRAB) (a southeast Asia mobile delivery, ride-sharing, and more app).

Interestingly, LYFT and DASH are expected to generate positive EBITDA growth next year.

Profitability

Source: Seeking Alpha

UBER and LYFT have remarkably similar gross margins. DPZ was also surprisingly high.

While UBER is the closest to turning a profit, it’s also got the lowest free-cash-flow margin except for GRAB.

Our Opinion 4/10

If Uber hadn’t run so much this year (50% in the last 12 weeks alone), it would be an intriguing play.

With a stock like Uber, it’s best to pick it up at a deep discount to provide you with enough potential upside to justify the risk.

We don’t see that now even if their outlook is better than a year ago.