Uber Technologies, Inc quarterly report, Q2 FY2019

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Business context and reporting period

Uber Technologies, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. Its reportable segments were Core Platform, primarily ridesharing and Uber Eats, and Other Bets, primarily Freight and New Mobility. The quarter included Uber’s May 2019 IPO.

Financial performance and liquidity

Amounts are in U.S. dollars. Quarter comparisons are against Q2 2018; six-month comparisons are against the first half of 2018.

  • Revenue: Q2 revenue was $3.17 billion, up 14%. Ridesharing revenue rose 2% to $2.35 billion, Uber Eats rose 72% to $595 million, and Other Bets rose to $195 million. First-half revenue was $6.27 billion, up 17%.
  • Operating results: Q2 operating loss was $5.49 billion and net loss attributable to Uber was $5.24 billion, compared with losses of $739 million and $878 million, respectively, in Q2 2018. First-half net loss was $6.25 billion, versus net income of $2.87 billion in the prior-year period. Q2 diluted loss per share was $4.72.
  • Margins and adjusted measures: Core Platform contribution margin fell to 8.2% from 14.7% in Q2 and to 1.9% from 16.3% for the first half. Adjusted EBITDA loss was $656 million in Q2, versus $292 million, and $1.53 billion for the first half, versus $572 million. Adjusted Net Revenue was $2.87 billion in Q2, up 12%.
  • Cash flow: For the six months, operating cash use was $1.64 billion; investing activities provided $50 million; financing activities provided $7.03 billion, mainly from the IPO. Capital expenditure purchases of property and equipment were $277 million.
  • Liquidity and balance sheet: At June 30, cash and cash equivalents were $11.74 billion and restricted cash was $1.95 billion, totaling $13.69 billion. Total assets were $30.98 billion, total liabilities $15.07 billion, and stockholders’ equity $15.92 billion. The IPO generated approximately $8.0 billion net proceeds; PayPal’s private placement added $500 million.
  • Debt and obligations: Debt principal was $4.60 billion, down from $7.49 billion at year-end 2018, mainly after convertible notes converted to shares at the IPO. The $2.3 billion revolving credit facility had no drawn balance. Operating lease liabilities totaled $1.45 billion; reported contractual obligations totaled $9.21 billion.
  • Operating scale: Q2 Gross Bookings increased 31% to $15.76 billion, MAPCs increased 30% to 99 million, and Trips increased 35% to 1.68 billion.

Material changes and unusual items

  • Uber recognized $3.6 billion of IPO-related stock-based compensation expense, contributing substantially to the reported Q2 loss. It also recorded $1.3 billion of payroll taxes related to net share settlement of IPO-vesting awards.
  • The company paid a $299 million Driver appreciation award, treated as a Driver incentive. Management cited increased incentives, consumer promotions and marketing as factors reducing Core Platform margins and take rate.
  • IPO-related conversion of the 2021 and 2022 convertible notes generated a reported $444 million gain on extinguishment and settlement of derivatives. Together with other income and expense items, Q2 other income was $398 million.
  • Cash and liquidity increased substantially following the IPO. Preferred stock converted into common shares, and the company ended the quarter with approximately 1.70 billion common shares outstanding.
  • Uber adopted lease accounting in January 2019, recognizing $888 million of right-of-use assets and $963 million of lease liabilities at adoption.

Outlook, commentary and risks

The filing provides no specific numerical revenue, earnings or profitability guidance. Management expected operating expenses to increase as it invested in platform growth, incentives, marketing, research and development, and new offerings; it cautioned that losses could continue and profitability might not be achieved. Management attributed weaker Core Platform margins to incentives and sales and marketing investment, and higher Other Bets losses to investment in Freight and New Mobility.

  • Uber expected Careem’s acquisition, valued at approximately $3.1 billion subject to adjustments, to close in January 2020, pending regulatory approvals. The consideration included approximately $1.4 billion cash and up to approximately $1.7 billion in convertible notes. The filing describes approval, possible divestiture and cash repayment risks.
  • The $1.0 billion ATG investment by SoftBank, Toyota and DENSO closed on July 2, 2019, after quarter-end. The related collaboration and investment remain subject to risks, including regulatory review.
  • Legal and regulatory exposure includes driver classification, non-income taxes, privacy and data protection, competition matters, licensing, and operations in multiple jurisdictions. Accrued legal, regulatory and non-income tax liabilities were $1.6 billion at June 30. The company also estimated $146–$170 million of payments and attorneys’ fees for certain arbitration settlements; outcomes of other matters may differ from recorded estimates.
  • Other stated risks include intense competition and costly incentives, ongoing operating losses, safety and insurance claims, cybersecurity, foreign exchange and investment valuation uncertainty, and the possibility of additional regulation. Management said disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

  1. How much of the Q2 and first-half loss reflects IPO-related stock compensation and other unusual items, and what recurring cost base remains.
  2. Whether revenue and Gross Bookings growth can translate into improved take rates, Core Platform contribution margins and lower Adjusted EBITDA losses.
  3. Operating cash use, liquidity needs, debt service and the cash obligations tied to leases and the planned Careem acquisition.
  4. Developments in driver classification cases, accrued legal and tax exposures, and Careem’s regulatory approvals and final purchase terms.
  5. The valuation and liquidity of major private-company investments, and the basis for reported operating metrics, which the company says are not independently verified.