One Profitable Segment Carrying Four Unprofitable Ones
Uber's second 10-Q as a public company showed a business whose headline numbers were still swamped by IPO-related stock-based compensation, but whose underlying Core Platform Contribution Margin was rebounding. This 10-Q, covering the quarter ended September 30, 2019, is the first filed under a new segment structure - during the quarter, Uber's chief operating decision maker began managing the business at a more disaggregated level, and Uber now reports five operating segments: Rides, Eats, Freight, Other Bets, and ATG and Other Technology Programs (Advanced Technologies Group, Uber's self-driving unit) - replacing the old "Core Platform" and "Other Bets" groupings this site's earlier posts used.
The new segment breakdown makes a story visible that the old grouping partly obscured: Rides Segment Adjusted EBITDA grew 52% year-over-year to $631 million, and Uber's own shareholder letter states plainly that Rides profitability "now covers all of our Corporate G&A and Platform R&D" - meaning the ridesharing business alone is large enough to fund the company's entire central overhead. Every other segment, though, is losing more money than it did a year ago: Eats Segment Adjusted EBITDA loss grew 67%, from $189 million to $316 million, Freight's loss grew from $31 million to $81 million, and Other Bets' loss went from $12 million to $72 million - a six-fold increase. Consolidated revenue grew 30% to $3,813 million and Gross Bookings grew 29% to $16,465 million, but net loss attributable to Uber widened 18% year-over-year to $1,162 million, and Adjusted EBITDA» loss widened 28% to $585 million - Rides' improvement wasn't enough to offset the deepening losses everywhere else.
Uber's own explanation for the Eats swing is direct: the company is deliberately "continu[ing] investments within our non-Rides offerings" - a land-grab strategy against DoorDash and Grubhub in food delivery that this site has separately tracked from DoorDash's side. The market's reaction over the same period was blunt: Uber's stock fell from a June 2019 close of $46.38 to a September 30, 2019 close of $30.47, a 34.3% decline in three months - see Stock Price Since Last Quarter below.
The Prescription
Uber should keep funding Eats at the current intensity for now, but should start reporting a standalone path to Eats profitability the way it already has for Rides - the new five-segment disclosure this quarter is a genuine improvement in transparency, and management should use it to show investors when Eats' unit economics are expected to turn, not just that Rides can absorb the drag indefinitely. Freight and Other Bets, by contrast, are small enough in absolute dollars ($81 million and $72 million of quarterly loss, respectively) that funding them is a real but manageable bet on long-term optionality - ATG in particular, whose loss actually shrank 6% this quarter even before accounting for the new external capital it just raised (see Beyond the Usual), looks like the more disciplined of the smaller segments.
What it should stop doing: treating Rides' self-funding status as license to let Other Bets losses grow six-fold without a visible cap. A single quarter's move from a $12 million to a $72 million segment loss, on a segment that generated just $38 million of revenue, is the kind of unconstrained scaling of a genuinely early-stage bet that a company already burning $585 million a quarter at the consolidated Adjusted EBITDA line can't treat as immaterial simply because Rides happens to cover it today.
Key Financial Metrics
Q3 2019 vs. Q3 2018 - consolidated, reported in USD (Uber reports natively in USD, no FX conversion needed)
| Metric | Q3 2019 | Q3 2018 | YoY |
|---|---|---|---|
| Revenue | $3,813M | $2,944M | ✅ +30% |
| Adjusted EBITDA» | $(585)M | $(458)M | ⚠️ loss widened 28% |
| Operating Income (Loss) | $(1,106)M | $(763)M | ⚠️ loss widened 45% |
| Net Income (Loss) attributable to Uber | $(1,162)M | $(986)M | ⚠️ loss widened 18% |
| Free Cash Flow» | ~$(1,007)M | not disclosed on a discrete quarterly basis (see note) | — |
Balance sheet: Dec 2018 vs. Sep 2019 - the swing to positive equity reflects the IPO converting preferred stock into common equity, not new profitability
| Balance sheet metric | Sep 2019 | Dec 2018 | Change |
|---|---|---|---|
| Cash and Cash Equivalents | $12,650M | $6,406M | ✅ +97% |
| Total Assets | $32,292M | $23,988M | ✅ +35% |
| Total Liabilities | $16,241M | $17,196M | ✅ -6% |
| Total Equity (Deficit) | $15,742M | $(7,385)M | ✅ swung positive |
Uber does not disclose a discrete quarterly operating cash flow or capex figure; the ~$(1,007) million Free Cash Flow above is this site's own calculation, derived by subtracting the already-disclosed Q1 ($(722)M operating cash flow, $129M implied capex) and Q2 ($(922)M operating cash flow, $148M implied capex) standalone figures from this filing's nine-month cumulative totals ($(2,522)M operating cash flow, $406M capex). On that basis, Q3 standalone operating cash flow was roughly $(878) million and capex was roughly $129 million, worse than either of the first two quarters, though nine-month cumulative operating cash flow of $(2.5) billion is heavily distorted by the $4.4 billion of stock-based compensation and $1.5 billion of RSU tax-withholding cash outflows tied to the IPO earlier in the year.
The balance sheet swing from a $7.4 billion equity deficit to $15.7 billion of positive equity is entirely an IPO accounting effect - the automatic conversion of redeemable convertible preferred stock into common equity - not new profitability; Uber's accumulated deficit actually grew from $7.9 billion to $15.3 billion over the same period. In September 2019, Uber issued $1.2 billion of 7.5% senior unsecured notes due 2027, adding to a debt stack that also includes 2018-vintage senior notes and a term loan.
Revenue grew 30% and Rides' own profitability improved enough to cover all of Uber's corporate overhead - but four of Uber's five segments lost more money than a year ago, consolidated losses widened across every GAAP measure, and the market spent the quarter selling the stock down 34% from its June high.
Segment Results
Uber now reports five segments: Rides (ridesharing and New Mobility - bikes and scooters), Eats (food delivery), Freight (Uber's shipper-carrier marketplace), Other Bets (early-stage products), and ATG and Other Technology Programs (self-driving and related R&D). Segment Adjusted EBITDA replaces what this site's earlier posts called "Core Platform Contribution" and "Other Bets Contribution" - the definitions are unchanged, only the reporting granularity improved.
Segment revenue and Segment Adjusted EBITDA, Q3 2019 vs. Q3 2018
| Segment | Revenue Q3 2019 | Revenue Q3 2018 | Adj. EBITDA Q3 2019 | Adj. EBITDA Q3 2018 |
|---|---|---|---|---|
| Rides | $2,868M | $2,340M ✅ +23% | $631M | $416M ✅ +52% |
| Eats | $392M | $191M ✅ +105% | $(316)M | $(189)M ⚠️ loss +67% |
| Freight | $218M | $122M ✅ +78% | $(81)M | $(31)M ⚠️ loss +161% |
| Other Bets | $38M | $3M ✅ n/m | $(72)M | $(12)M ⚠️ loss ~6x |
| ATG and Other Tech | $17M (Toyota collaboration revenue) | $0 | $(124)M | $(132)M ✅ loss -6% |
| Corporate G&A / Platform R&D (unallocated) | — | — | $(623)M | $(501)M ⚠️ +24% |
Rides grew Gross Bookings 23% (revenue basis) and, critically, grew Segment Adjusted EBITDA faster than revenue - a genuine margin story, not just a scale story, driven by what management attributes to lower incentive spend in the U.S. and Canada. Rides Take Rate rose to 22.8% from 22.3%. Eats, by contrast, more than doubled revenue (105%) but its loss grew faster still (67% wider), and Eats Take Rate of 10.7% (up from 9.0%) shows Uber is capturing more of each dollar of Eats Gross Bookings even as it spends more to compete for that volume - the definition of a land-grab phase, not yet a unit-economics one. Freight, still a small business relative to the other four, saw its loss more than double as Uber continues building out carrier and shipper density. Other Bets (e-bikes, scooters, and other early-stage products) saw the sharpest deterioration in percentage terms - a segment generating $38 million of quarterly revenue losing $72 million is a striking ratio, though the absolute dollars remain small next to Rides and Eats. ATG, Uber's self-driving unit, was the one segment whose loss actually shrank year-over-year, and it also began recognizing its first collaboration revenue ($17 million from Toyota) this quarter following a preferred-unit investment by outside investors that closed during the quarter.
Comparing the five segments directly: Rides is the only segment both large and improving on a unit-economics basis; Eats is large and getting less efficient in dollar terms even as its take rate improves; Freight, Other Bets, and ATG are all still small enough in absolute dollars that their trajectories matter more for what they signal about capital discipline than for their effect on the consolidated numbers today.
Key Operational Metrics
Q3 2019 vs. Q3 2018
| Metric | Q3 2019 | Q3 2018 | YoY |
|---|---|---|---|
| Monthly Active Platform Consumers (MAPCs) | 103M | 82M | ✅ +26% |
| Trips | 1,770M | 1,348M | ✅ +31% |
| Gross Bookings | $16,465M | $12,725M | ✅ +29% (+32% constant currency) |
| Adjusted Net Revenue» | $3,533M | $2,656M | ✅ +33% (+35% constant currency) |
Gross Bookings by segment: Rides $12,554M, Eats $3,658M, Freight $223M, Other Bets $30M. Rides still represents roughly three-quarters of total Gross Bookings, but Eats' share has grown from about 17% a year ago to about 22% this quarter - the mix shift toward the segment losing money faster is exactly what a reader relying on the Gross Bookings headline alone would miss, since Gross Bookings growth (29%) actually understates how much of that growth is coming from the least profitable large segment.
Beyond the Usual
California's AB5 Prompted Uber to Fund a 2020 Ballot Measure of Its Own
California's Assembly Bill 5 ("AB5"), signed into law during the quarter and effective January 2020, codifies the "ABC test" for worker classification that a hiring entity must satisfy to treat a worker as an independent contractor rather than an employee - a direct threat to Uber's driver-classification model. Rather than seek an exemption through legislative amendment (the route several other industries took), Uber disclosed in this filing that it has filed a California ballot initiative for the November 2020 election, proposing a framework of guaranteed minimum earnings, injury insurance, and healthcare subsidies for drivers in exchange for preserving independent-contractor status. This is the same fight, and largely the same proposed structure, that DoorDash and other gig-economy platforms would jointly fund as Proposition 22 the following year - this filing is the earliest point in this site's coverage where that fight shows up on a company's own balance sheet risk disclosures.
Aggregate Legal and Regulatory Reserves Grew 27% in Nine Months
Uber's aggregate accrued liability for legal, regulatory, and non-income tax matters that are probable and reasonably estimable grew from $1.1 billion as of December 31, 2018 to $1.4 billion as of September 30, 2019 - a 27% increase in nine months. Separately, Uber disclosed that a UK Employment Tribunal case (Aslam, Farrar, Hoy and Mithu v. Uber), which found in 2016 that UK drivers are "workers" entitled to certain employment protections, lost Uber's appeal at the UK Court of Appeal in December 2018 and was headed to the UK Supreme Court, with a hearing expected in Q2 2020 and a decision in Q3 2020. Uber's own filing states that losing this case could also trigger UK VAT liability (20% of Gross Bookings) applied both retroactively and prospectively if UK tax authorities reclassify Uber as a transportation provider rather than a technology platform - a potential exposure well beyond the driver-classification question itself.
Outside investors closed a $1.0 billion preferred-unit investment in ATG (Uber's self-driving unit) during the third quarter of 2019, structured through a Preferred Unit Purchase Agreement - the transaction that let ATG begin recognizing external collaboration revenue (including the $17 million from Toyota noted above) for the first time this quarter, a genuine change in how the segment is capitalized rather than just an operating result.
In October 2019 (after quarter-end), Uber agreed to purchase a controlling interest in Cornershop, an online grocery delivery platform in Chile and Mexico - a smaller, earlier version of the adjacent-category expansion this site has separately tracked at DoorDash. Also in October 2019, Uber's insurer James River Group delivered notice of early cancellation of all policies issued to Uber's subsidiaries, effective December 31, 2019 - two months ahead of the contractual expiration - and withdrew funds previously held in trust as collateral for claims. Uber's filing doesn't quantify the financial impact, but a primary insurer voluntarily exiting early is worth watching given Uber's large and growing self-insured exposure (short- and long-term insurance reserves together grew from $2.9 billion to $3.3 billion over the same nine months).
Uber's pending acquisition of Careem (announced in March 2019, expected to close January 2020) - a Dubai-based ridesharing, delivery, and payments company covering the Middle East, North Africa, and Pakistan, for approximately $3.1 billion in cash and convertible notes - remained pending as of this filing, with no update on regulatory approval status disclosed this quarter.
Stock Price Since Last Quarter
Uber's stock fell sharply through the third quarter: from a June 2019 close of $46.38 (roughly two months after its May 10, 2019 IPO at $45.00 a share) to a July close of $42.14, an August close of $32.57, and a September 30, 2019 close of $30.47 - a 34.3% decline from the June high, and 32.3% below the IPO price itself. The decline accelerated sharply in August, coinciding with the standard 180-day post-IPO lock-up period for early investors and employees approaching its November 2019 expiration - a widely anticipated source of selling pressure that the market appears to have started pricing in ahead of time, on top of broader 2019 concerns about unprofitable, richly-valued "unicorn" IPOs (WeWork's withdrawn IPO happened during this same quarter). Uber's own quarterly results - Rides' improving profitability against widening losses everywhere else - offer a fundamentals-based explanation for caution, but the size and speed of the decline suggests sentiment and lock-up mechanics were doing at least as much work as the numbers themselves.
Target Valuation Range
Too early for a reliable numeric range. Uber's own segment disclosure this quarter is genuinely useful for judging Rides on its own economics, but a consolidated DCF or peer-multiple read is still distorted by less than five months of public trading history, an unresolved and highly consequential lock-up expiration, and a business still running four money-losing segments funded by one profitable one - the assumptions needed to produce a credible target range aren't stable yet.
With approximately 1,705.8 million shares outstanding (per the cover page, as of October 25, 2019) and a September 30, 2019 close of $30.47, Uber's market capitalization was approximately $52.0 billion, against total debt (long-term debt, net of current portion) of $5.7 billion and cash and cash equivalents of $12.7 billion - implying an enterprise value of roughly $45.0 billion, below Uber's IPO-day valuation and well below the ~$76 billion some pre-IPO estimates had floated a year earlier. Against TTM revenue of roughly $13.0 billion (nine-month 2019 revenue of $10,078 million plus Q4 2018 revenue, not yet directly disclosed in this filing), that implies a rough EV/Revenue» in the mid-3x range - a materially cheaper multiple than DoorDash would command at its own IPO roughly a year later, though the two companies were at very different stages of segment diversification and profitability by then.
A full DCF isn't attempted here: Uber has never reported a profitable quarter as a public company, the segment structure just changed this quarter (making any prior-period trend line for a multi-year model less reliable), and the pending Careem acquisition (not yet closed) would materially change the consolidated base a forward model would need to start from. The market-cap/EV arithmetic above is offered as a snapshot, not a verdict on fair value - a genuine target range will be more useful once Uber has a full year of consistent five-segment reporting and the post-lock-up share count has settled.
Uber Technologies, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed with the SEC in November 2019.