Uber and Lyft represent enormous bets by venture capitalists and other private investors, wagers that the companies hit on a new sort of service that could not only generate tens of billions of dollars in global use but also, in time, profits.
However, in the period after the two companies went public this year their share prices have struggled under the weight of slower-than-expected growth, and sharp, unrelenting unprofitably.
Lyft and Uber’s reported results changed the narrative surrounding the unicorns, shifting the public’s perception of the companies from impressive upstarts to expensive question marks.
Let’s examine the market reaction to all the news, and tie it back to the private companies who won’t be able to accept Uber and Lyft being their comps if and when they try to go public themselves.
A week later the company reported its third quarter results, including quick revenue growth ($955.6 million, up 63 percent from $585.0 million), expanding losses ($463.5 million, up 86 percent from $249.2 million), and improving adjusted losses ($121.6 million, down 50 percent from $245.3 million).
As Uber is a more global company, and as it has more business lines than Lyft, it’s results are harder to parse out.
Uber’s full-year profitability has improved, and it’s promising to see that its losses aren’t as bad as expected.
Rides: $12.6 billion in gross bookings (+20 percent, YoY), $2.9 billion in resulting adjusted net revenue (+23 percent YoY), and $631 million of adjusted EBITDA (+52 percent YoY).
Eats: $3.7 billion in gross bookings (+73 percent, YoY), $392 million in adjusted net revenue (+105 percent, YoY), and negative $316 million of adjusted EBITDA (-67 percent YoY).
Freight: $223 million in gross bookings (+81 percent YoY), $218 million in adjusted net revenue (+78 percent YoY), and negative $81 million of adjusted EBITDA (-161 percent YoY).
Other Bets: $30 million in gross bookings, $38 million in adjusted net revenue, and negative $72 million of EBITDA.
From this perspective we can see that Uber’s core business (Rides being 76 percent of its revenue) generates quite a lot of adjusted profit.
And, therefore, the company’s adjusted EBITDA will remain negative for years to come as Uber endures longer losses to allow for greater revenue growth.
The question then becomes why Lyft and Uber are trading down now, just as the two companies are promising future profits and pushing their forecasts up.
First, it’s clear that the companies’ GAAP losses ($463.5 million in Q3 from Lyft, $1.16 billion in Q3 for Uber) are going to continue for the foreseeable future; neither company has made a commitment to staunching its GAAP red ink.
Continuing, a big piece of each GAAP net loss figure is share-based compensation, telling public market investors that every quarter when Lyft and Uber report adjusted profit, they are looking past a lot of dilution to get to the better-seeming figure.
Secondly, because it’s a little clearer than before that Uber and Lyft’s long-term estimates of 20 to 25 percent adjusted EBITDA margins are probably just about right.