Uber Technologies is becoming more profitable. However, it still strives to please Wall Street, which pays close attention to bookings and the quality of earnings.
Management was pleased with the results.
“We hit another important milestone this quarter, delivering over $1 billion in GAAP [generally accepted accounting principles] operating income for the first time in our company’s history, and are on track to deliver 20 percent gross bookings growth on a constant currency basis for the full year,” added Uber Chief Financial Officer Prashanth Mahendra-Rajah.
In addition, both executives conveyed an optimistic message about the company’s strategy to enhance rider experience and shareholder returns.
“We continue to build with an eye toward the future, optimizing our products for new customer segments and geographies, introducing Rider Verification nationwide to increase safety for drivers, and launching shuttles to airports and venues,” Khosrowshahi said.
“And, of course, we continue to advance our autonomous strategy, demonstrating how Uber can help unlock this exciting technology for the world.”
“We remain committed to returning capital to shareholders through repurchases while strategically investing in organic growth vectors that will position us to capture the significant opportunities ahead,” Mahendra-Rajah said.
Dré Villeroy, CEO of private equity company Beyorch, joined Uber’s management in praising the company’s recent financial performance.
“Based on the current market, stability and strategic vision are key components to smart investing, and Uber’s third-quarter earnings show growth in both areas,” he told The Epoch Times via email. “Uber skillfully balances profitable growth and expansion, as seen by the business’s high-profit margins.”
Beyorch believes this shift is positive for investor mood.
“Uber’s ability to expand effectively while concentrating on efficiency in operations without giving up development is demonstrated by the higher modified EBITDA,” he said, referring to earnings before interest, taxes, depreciation, and amortization.
That wasn’t the case on Wall Street on Thursday, when Uber’s shares fell by more than 11 percent in late-morning trade. And they have still been lagging the major equity indexes this year and since the company went public in 2019.
Wall Street is skeptical about the company’s third-quarter numbers, which could be attributed to several reasons. The first is a negative sentiment across the technology sectors that drove the tech-heavy Nasdaq close to 2.5 percent lower in early morning trade.
Second is the quality of Uber’s earnings. For instance, the $2.6 billion net income included a $1.7 billion benefit (pretax) due to net unrealized gains related to the revaluation of Uber’s equity investments rather than gains from revenues generated from the company’s core business.
Meanwhile, bookings, a measure of the strength of the core business, slowed from an annual growth of 19 percent in the second quarter to 16 percent in the third quarter.
Worse, the company’s ROIC is well below its weighted average cost of capital, meaning it manages capital ineffectively. Companies that earn returns on their investments that lag the cost of capital destroy, rather than create, shareholder value.
One of the reasons behind Uber’s low ROIC is the nature of the ridesharing market, a homogeneous duopoly, which forces Uber and its peer, Lyft, to engage in price competition. It’s a competitive strategy that leaves the two companies without pricing power, earning a “normal” profit in the long run.
However, Beyorch remains optimistic about Uber’s future business strategy and the promise of its management to maximize shareholder returns.
“If the fourth quarter’s expectation of ongoing growth is correct, this shift can cause a positive market response,” he said. “Because it appeals to new consumers and shareholders, Uber’s ability to adjust to consumer needs is seen in the rise of the Mobility segment, especially through developments in EVs [electric vehicles] and airport shuttles.”
He sees Uber’s earnings, creativity, and calculated investments in quickly expanding autonomous systems as a solid basis for the company’s shares soon.
“As traders process Uber’s prospects and market standing, keeping an eye on pricing and volume activity following profits will be important,” he said.
