Uber Technologies Inc seems to have decided to stop chasing stupid growth. This is exactly what investors wanted, yet the company’s latest results, announced on Monday, show how far Uber has to go to be sustainable and rational.
In the third quarter, the total value of Uber rides, restaurant meal deliveries and other transactions increased 29% from a year earlier — the slowest rate of increase since Uber began reporting that figure. The total figure of $16.5 billion was also a little short of analysts’ expectations, as was the growth in average monthly customers using Uber services at least once. That most likely contributed to the after-market decline in Uber shares.
What Uber seems to be doing is precisely what investors want now. The company is trying to stop growing where it doesn’t make sense. Third-quarter revenue from rides, excluding what Uber classifies as excessive driver incentives and driver referrals, increased 23% in the quarter, rebounding from a growth slowdown. The adjusted revenue growth for Uber Eats, the restaurant delivery service, also accelerated.
The divergence between slowing growth in total transactions and a faster pace of revenue in crucial segments suggests that Uber has increased consumer prices, reduced incentives or made other tweaks to keep more revenue from each ride or food delivery — even if that means some people are turned off enough not to use Uber at all. This is rational, yes, but acting like a sensible company may also crimp Uber’s eventual size and ambition.
Uber also said it’s aiming to have positive adjusted earnings before interest, taxes, depreciation and amortisation in 2021. That is far earlier than analysts have expected Uber to be profitable — or profitable-ish. Lyft made a similar pledge last month to be in the green by the end of 2021 on a massaged profit number that excludes stock compensation and some other costs.
It’s useful to step back and see how much has changed for Uber, Lyft and other young and richly-valued companies. Ever since these companies went public in the first half of this year, Uber and Lyft have been forced to shift gears and chase profits, or some semblance of them, rather than boasting about how big they can grow if they swallow more of people’s current spending on transportation.
This is the new normal for young companies like Uber: Investors want them to grow, but not if the growth is achieved with unsustainable spending or rash financial trade-offs. There in the penalty box is WeWork, the office leasing startup that did exactly that.READ MORE
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