What Happened

Uber reported lower-than-expected losses for Q4 2019 on Feb 6. It reported sales numbers roughly in line with what analysts expected. Despite the lower losses, Uber's negative free cash flow was much higher than expected. While it is sitting on about $10.8 billion in cash between investments and operating losses, it burned through over $5 billion in 2019. It can't keep burning through cash at this rate, or it will have to either take on significantly more debt or issue significantly more stock.

(Below is Investopedia's original earnings preview published 1-31-20)

What to Look for

Ride-hailing service Uber Technologies Inc. (UBER), one of the most highly-anticipated IPOs of 2019, has been a disappointment to many investors. Its stock has declined sharply since going public. Uber burned through significant sums of cash in the first three quarters of the year, as indicated by the company's large negative free cash flow (FCF). Investors will want to see whether this key metric improved in the most recent quarter when Uber reports Q4 2019 earnings on February 6, 2020. After each of the two most recent earnings reports, Uber's stock dropped precipitously. With analysts expecting year-over-year (YOY) revenue gains and fewer losses per share for Q4, investors will be watching closely.

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

Uber went public in May of 2019, so we will look to the company's most recent performance as a benchmark. Uber's quarterly revenue has made gains in recent quarters, climbing from $3.2 billion in Q2 2019 to $3.8 billion in Q3 2019, substantial YOY increases. Analysts expect Q4 2019 revenue to reach $4.1 billion, another quarter-over-quarter improvement and an increase of 37.4% YOY. Unfortunately for Uber, its earnings per share (EPS) have not shown the same growth. Indeed, Uber has yet to post a positive quarterly EPS. Q2 2019 saw losses per share of $4.72, a YOY decline of 134.6%. In Q3, that figure was reduced to losses per share of $0.68, a YOY increase of 69.1%. Analysts expect Uber to post the same losses of $0.68 per share for Q4, a YOY improvement of 47.6%.

Uber Key Metrics
  Q4 2019 (Estimate) Q3 2019 Q2 2019
Earnings Per Share -$0.68 -$0.68 -$4.72
Revenue (in billions of dollars) 4.1 3.8 3.2
Free Cash Flow (in millions of dollars) -270.2 -1,007 -1,070

Source: Visible Alpha

A crucial milestone for young companies such as Uber is reaching the point where they begin to generate positive free cash flow on a consistent basis going forward. At that point, these companies become self-sustaining enterprises that do not need additional infusions of capital from investors to maintain its current levels of operation. If Uber cannot curb its negative FCF, it may need to take out more debt or issue more stock, either of which could negatively impact the company's share price.

FCF takes cash flow from operations and subtracts capital expenditures (capex). Capital investments are required to continue operating the business long term, so the cash leftover is free to use elsewhere.

Uber posted a negative FCF of more than $1 billion for both Q2 and Q3 2019. While there was a slight improvement in Q3, Uber is still going through its available cash quickly. Analysts expect that the company will report FCF for Q4 2019 of -$270.2 million. If it manages to do this, it would be a major step in showing that its business model can be sustainable.