Does Uber’s extreme losses this quarter call its business model into question?
The latest earnings report from transport giant Uber reveals that the company lost a staggering $5bn in operation costs in Q2.
Most of the losses, however, stem from a typical expense for newly public companies – Uber’s IPO cost and the resulting stock-based compensation came to $3.5bn, accounting for the lion’s share of the losses. The fact that it is a particularly large company, larger than one might expect a newly public company to be, further inflates the figure.
For this reason, Bloomberg analysts anticipate that Wall Street is likely to overlook these numbers and forgive it as a once-off. Bloomberg Intelligence senior analyst Mandeep Singh said that Uber will likely spend another $2.5bn on stock compensation at some point in the future.
Still, it represents the company’s largest-ever reported quarterly loss, and it will ramp up the pressure on the company to prove that this development is an anomaly as opposed to a harbinger of an unsustainable business model.
Uber also reported 31pc year-on-year growth in bookings for this quarter, which represents the slowest growth since Q2 2018 and continues a trend of decline.
When it first announced its IPO plans, Uber said that it wanted to generate $10bn from going public, which would have been one of the largest tech IPOs ever.
Just one month later, however, the company admitted that it may never turn a profit and fell short of its target, raising $8.1bn and putting its IPO at $45 a share.
Is this model built on a house of cards though – or cars, as it were? Uber will have to work very hard to prove that it isn’t and quell investor scepticism. Fellow transport giant Lyft recently signalled an end to the price war it previously waged with the company, something that buoyed both firms’ stocks and bodes well for Uber.
The company also has to deal with a series of high-profile incidents, including a fatal self-driving car crash in 2018 and a recently settled lawsuit launched by two women who were sexually assaulted by the same Uber driver.