Key Takeaways

  • EPS was -$0.62 vs. the -$0.61 analysts expected.
  • Revenue fell short of analyst expectations.
  • Gross bookings for Rides was lower than the level analysts estimated.
  • Gross bookings for Eats was higher than the level analysts estimated.
  • Uber continues to be adversely impacted by the pandemic.

What Happened

Uber reported a loss in earnings per share that narrowly missed analysts' expectations for Q3 2020. Revenue and gross bookings for the company's Rides business also fell short of analyst forecasts. However, gross bookings for the Eats segment surpassed expectations. Both revenue and Rides gross bookings declined YOY. But Eats gross bookings more than doubled compared to the year-ago quarter. While Uber's business continues to be adversely impacted by the pandemic, the company highlighted improvements from the previous quarter.

(Below is Investopedia's original earnings preview, published November 2, 2020.)

What to Look For

Uber Technologies Inc. (UBER) is experiencing a rapid decline in its flagship ride-hailing service business amid the COVID-19 pandemic and related shelter-in-place restrictions. But the same forces that are weakening demand for ride sharing are strengthening demand for the company's fast-growing food delivery service, now its biggest business.

Investors will be watching to see how Uber's overall business is performing amid these countervailing trends when the company reports earnings on November 5, 2020 for Q3 FY 2020. Analysts are expecting another loss per share as revenue plunges for the second quarter in a row.

California voters approved Proposition 22 (Prop 22) on Nov. 3, 2020, meaning that Uber will be exempted from California's law, AB5. This means they will be able to ignore the laws provisions which otherwise could have required that they classify their drivers as employees.

Investors will also be focused on the results of Uber's ride-hailing service and its food-delivery service, best captured by the following two key metrics: gross bookings for Rides and gross bookings for Eats. Analysts expect Rides gross bookings to plunge as Eats gross bookings soar compared to the year-ago quarter.

After beginning to outperform in late January and February, the pandemic-induced market crash sent Uber's shares tumbling further than the rest of the market. The stock rebounded from its bottom in mid-March through the first week of June. But since then, it has made wild swings as it's gone essentially sideways in a wide band. Uber's shares have significantly lagged the broader market this year, providing a total return of -1.1% over the past 12 months, below the S&P 500's total return of 7.3%, as of October 30, 2020.

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

Uber's shares fell for two weeks following its Q2 FY 2020 earnings report on August 6, which showed the first year-over-year decline in the company's revenue in at least two and a half years. Revenue plunged 29.2% compared to the year-ago quarter. Uber posted a loss per share of $1.02, its ninth consecutive quarterly loss. However, it was an improvement from the loss of $4.71 per share posted in the same quarter a year ago.

It was also an improvement from the $1.70 loss per share reported in Q1 FY 2020 on May 7. Revenue for the first quarter rose 14.3%, a sharp deceleration from the roughly 25% average YOY pace of growth for the four quarters of 2019. Uber's shares rose following the report and continued to move higher over the subsequent month before experiencing a significant pullback.

Analysts expect revenue to fall 15.9% in Q3 FY 2020. It would be the second consecutive quarter of YOY declines, albeit not as steep as in Q2. Analysts estimate that Uber will post another quarterly loss per share. But at $0.61, it would be the smallest loss per share since posting positive earnings per share (EPS) in Q2 FY 2018. For full-year 2020, analysts are forecasting an annual loss per share of $3.75 as revenue sinks 9.2%.

Uber Key Metrics
  Estimate for Q3 2020 (FY) Q3 2019 (FY) Q3 2018 (FY)
Earnings Per Share ($) -0.61 -0.68 -2.21
Revenue ($B) 3.2 3.8 2.9
Gross Bookings for Rides ($B) 6.5 12.6 10.5
Gross Bookings for Eats ($B) 7.9 3.7 2.1

Source: Visible Alpha

As mentioned, investors will closely watch Uber's gross bookings for both its Rides segment and its Eats segment. The Rides segment offers ride-sharing services while the Eats segment allows customers to search for restaurants, order a meal, and either pick the meal up or have it delivered. Gross bookings is a key metric used by Uber to give an indication of the size and growth rate of each of its segments. It is comprised of the total dollar amount generated by those segments, including applicable taxes, tolls, and fees, and makes no adjustment for discounts and refunds, driver and restaurant earnings, nor for driver incentives. Historically, Uber Rides has been by far the major source of gross bookings, but it has been overtaken by Eats amid the pandemic.

Gross bookings for the Rides segment reached a peak of $13.5 billion in Q4 FY 2019. In the same quarter, Eats generated $4.4 billion in gross bookings. But starting in Q1 FY 2020, gross bookings for Rides has steadily fallen YOY while it has continued to rise for Eats. In Q2 FY 2020, Rides gross bookings fell 75.0%, its biggest decline in at least ten quarters. Eats gross bookings grew 105.6%, overtaking Rides as Uber's main source of gross bookings. Analysts expect gross bookings for Rides to fall 48.2% in Q3 FY 2020 while gross bookings for Eats is expected to rise 115.4%.

However, when it comes to Uber's overall revenue, one dollar of gross bookings for Rides is not the same as one dollar of gross bookings for Eats. The share of gross bookings that is converted into revenue, as measured by Uber's take rate, is nearly twice as high for the Rides segment compared to Eats. In Q2 FY 2020, the Rides take rate was 26.0%, meaning over a quarter of Rides gross bookings was being converted into revenue. The Eats take rate was just 12.7% during the same quarter. Though Eats is now bigger than Rides in gross bookings, the segment's low take rate limits the positive impact it can have on Uber's revenue and earnings.