Key Takeaways

  • EPS was -$1.02 vs. the -$0.91 expected by analysts.
  • Revenue declined, but beat analyst expectations.
  • Gross bookings for Rides fell by more than expected, but bookings for Eats rose by more than expected.

What Happened

Uber reported larger-than-expected losses for its 2nd quarter, even as revenue beat analysts' estimates. This is due to the 75% drop in gross bookings (total transactions Uber took a cut of) for its Rides segment, and the doubling of gross bookings for its Eats segment. Both the decline and rise were greater than what analysts had expected and Eats has, at least temporarily, replaced Rides as Uber's largest segment by sales and gross bookings. As a side note, Uber refers in its press release to Rides and Eats as "Mobility" and "Delivery," respectively. This segment shift also explains the discrepancy between earnings and sales, because while Eats did generate additional revenue, it is not profitable, even on the more generous profit metric that Uber uses for its segments. Uber hasn't let this lack of profit slow down its acquisitions, as it announced on August 5 that it was purchasing U.K. taxi-hailing company, Autocab.

(Below is Investopedia's original earnings preview, published August 5, 2020)

What to Look For

Uber Technologies Inc. (UBER), the ride-hailing service that went public in 2019, may have to postpone plans for profitability until next year, or at least until the COVID-19 pandemic is over. The crisis has confined millions of people at home, causing a steep drop in the number of customers hailing rides, Uber's main business.

Investors will look at just how badly this trend is affecting the company when Uber reports earnings on August 6, 2020 for Q2 FY 2020. Analysts expect Uber to post a net loss on a per share basis and revenue to plunge.

Investors will focus on Uber's Gross Bookings for its Rides segment, a key metric offering a more precise indicator of how the company's ride-hailing service has been affected during the pandemic. Gross Bookings posted a small decline in Q1 FY 2020, but analysts expect a precipitous 69.8% drop in Q2.

Uber's stock has badly lagged the broader market over the past year. Its shares have provided investors with a total return of -19.1% over the past 12 months compared to the S&P 500's total return of 12.8%. Indeed, the much-anticipated IPO of the unicorn ride-hailing startup in May of last year has largely disappointed investors as the stock has recently traded around 20% below its first-day closing price of just below $42.00.

One Year Total Return for S&P 500 and Uber
Source: TradingView.

Despite posting earnings for Q1 FY 2020 that sorely missed analysts' expectations, Uber's shares continued to rebound from the pandemic-induced market crash begun in late February. The company reported -$1.70 in earnings per share (EPS) and revenue growth of 14.3%. That larger-than-expected loss and the slowest revenue growth in at least two years portends more trouble ahead as the virus continues to spread. The stock has traded mostly sideways after pulling back sharply in early June.

The first quarter was a stark contrast from Uber's reported earnings for the final quarter of 2019, before the world economy became overwhelmed by COVID-19. The company posted EPS of -$0.64 and revenue growth of 36.8% in Q4 FY 2019. It was the smallest loss suffered by Uber since going public, a sign that the company's profit outlook was improving. It also was the fastest revenue growth since Q3 FY 2018.

Analysts expect a rough second quarter, at least as far as revenue is concerned. Revenue is forecast to fall 32.6% for Q2 FY 2020, which would mark the first decline in at least ten quarters. However, cost-cutting measures implemented since Q1 may help to improve the earnings situation. Analysts expect Uber's loss to narrow dramatically, which is striking in light of its plunging revenue. They estimate EPS of -$0.91, which is less than a fifth of the -$4.71 in the same period a year earlier.

The forecast also is bearish for the full year. Revenue is expected to decline 9.6% and EPS is expected to be -$3.79.

Uber Key Metrics
  Estimate for Q2 2020 Actual for Q2 2019 Actual for Q2 2018
Adjusted Earnings Per Share ($) -0.91 -4.71 -1.99
Revenue ($B) 2.1 3.2 2.8
Gross Bookings - Rides ($B) 3.7 12.2 10.2

Source: Visible Alpha

As mentioned above, investors will also focus on another key Uber metric: Gross Bookings from its ride-hailing service, where Uber gets most of its revenue. That metric is defined as the total dollar value, including applicable taxes, tolls, and fees, generated from Uber's Rides segment. The metric makes no adjustment for consumer discounts and refunds, nor for driver earnings and incentives. Uber Rides comprises 69% of total Gross Bookings, as of the first quarter of 2020.

The lockdowns introduced to limit the spread of COVID-19 means that people are moving about less than they normally would be. That means fewer cabs are being hailed, which has negatively affected Uber's Gross Bookings for its Rides segment. The metric declined 5.0% in Q1 FY 2020 after rising 17.7% in Q4 FY 2019, illustrating the negative impact of the pandemic. Analysts expect the vast majority of Uber's Gross Bookings in Rides to disappear in FY Q2 2020, plunging by more than two-thirds.

On a more optimistic note, Uber Eats, the company's food delivery business, is growing. Gross Bookings for the Eats segment rose 52.5% in Q1 FY 2020. Analysts expect a 91.7% rise for Q2 FY 2020, which would be the fastest pace since Q1 FY 2019. Still, Uber Eats comprises just 30% of total bookings as of Q1, meaning its strength may not be not enough to fully offset the weakness in the much bigger Rides segment. Uber looks to be trying to change that, having recently announced plans to acquire food-delivery business Postmates Inc. and the unveiling of a new grocery delivery service in select locations.