The Eats business is a natural hedge to declines in rides, but upside appears limited in any scenario.
Photo: valentyn ogirenko/ReutersUber’s ride-hailing business isn’t exactly riding high amid economic re-openings. Investors who have bid up the stock this month in anticipation of a recovery are now questioning just how easily the company can navigate future dips.
Uber’s mixed results on Thursday were a sign the ride-hailing industry may be less resilient than investors hoped. Second-quarter gross bookings came in below estimates, falling 35% year-over-year to $10.2 billion. Importantly, gross bookings for its rides business—now renamed “Mobility”—declined 73%.
Uber said in May that it had been seeing early signs of recovery, albeit one that was uneven across geographies. That has continued, with bookings in countries like France improving significantly, while bookings in various regions of the U.S. remain down 50% to 85% from a year earlier. On the positive side, Uber’s food delivery business continues to grow, with bookings more than doubling from a year earlier.
Uber aims to achieve overall profitability by the end of next year and has put aggressive cost-cutting measures in place. To its credit, Uber’s rides business remained slightly profitable on an adjusted basis, even as ridership fell. And its July move to acquire food delivery rival Postmates promises to bolster cost savings through synergies and more rational pricing longer-term.
But sustainable profitability will require both ride-hailing and food delivery to be firing on all cylinders—something that looks less likely as the coronavirus pandemic stretches on. Excluding one-time costs, Uber’s second-quarter adjusted loss before interest, taxes, depreciation and amortization widened 26% in the June quarter versus the year-ago period. In a conference call with investors, the company said it expected Eats adjusted operating losses in the third quarter to be roughly in-line with the second quarter, but improve in the final quarter of the year.
From a valuation perspective, Uber is back to pre-pandemic highs at around 3.7 times enterprise value to forward sales. Meanwhile, it continues to straddle both sides of the shelter-in-place trade: the Eats business is a natural hedge to declines in rides, but upside appears limited in any scenario.
In such a tumultuous market, Chief Executive Officer Dara Khosrowshahi stressed that “hope is not a strategy.” Investors should take this to heart. It isn’t yet clear that Uber has chosen the right road map.
Write to Laura Forman at laura.forman@wsj.com
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