UBER Rides Margin Tripled as COVID-19 Hit — But a $1.9 Billion Paper Loss on Didi and Grab Buried the Good News

The Quarter COVID-19 Arrived - and Made Uber's Core Business Look Better on Paper

Uber's FY2019 10-K closed out the company's first year public with revenue up 26% and Rides proving it could self-fund the company's overhead across four full quarters. This 10-Q, covering the quarter ended March 31, 2020, is the filing where COVID-19 first shows up in Uber's numbers - and the effect is more complicated than "the business got worse." Consolidated revenue grew 14% year-over-year to $3,543 million (from $3,099 million), Gross Bookings were "adversely impacted by COVID-19" with Rides Gross Bookings actually declining 3% in constant currency, and MAPCs and Trips growth both decelerated sharply into March as stay-at-home orders spread globally.

Yet Rides Segment Adjusted EBITDA more than tripled year-over-year, up 203% to $581 million, and Rides Adjusted EBITDA margin as a percentage of revenue jumped to 23.5% from 7.9% a year earlier - not because Rides grew, but because Uber cut consumer promotions by $142 million and insurance expense by $78 million as fewer miles were driven, and because incentive spend fell as driver supply tightened relative to (falling) rider demand. Eats, conversely, benefited directly from the stay-at-home shift: Eats revenue grew 53% to $819 million and Eats adjusted net revenue more than doubled (up 121%) - but the Eats Adjusted EBITDA loss barely moved (up just 1%, to $313 million), meaning Eats captured genuine pandemic-driven demand without materially improving its underlying unit economics.

None of that operating improvement showed up at the GAAP net-loss line. Net loss attributable to Uber widened to $2,936 million from $1,012 million a year earlier - nearly triple - almost entirely because of a combined $1.9 billion non-cash impairment on Uber's equity and debt stakes in Didi (China) and Grab (Southeast Asia), both marked down as global equity markets crashed in March 2020. Consolidated Adjusted EBITDA loss, which excludes that markdown and other non-cash items, actually narrowed 30% to $612 million from $869 million - the closest thing to good news the quarter has, and a figure the market largely couldn't see behind the GAAP headline.

The Prescription

Uber should be explicit with investors, in plain language rather than buried in a fair-value footnote, that its Didi and Grab stakes are now a source of quarter-to-quarter GAAP earnings volatility that has nothing to do with Uber's own operations - a $1.9 billion swing from two minority investments in a single quarter is large enough to distort the headline net-loss number beyond usefulness for anyone not reading the segment tables. At the same time, management should resist the temptation to read Q1's Rides margin improvement as a durable structural gain: it was driven by a temporary collapse in both promotional spend and driven miles, not by a repeatable efficiency gain, and the 10-Q's own language (Rides Gross Bookings declining even as margin improved) makes that distinction unusually clear this quarter.

What it should stop doing: continuing to expand Other Bets (New Mobility - bikes and scooters) at pre-pandemic intensity when the segment's own operations had to be paused across certain markets this quarter due to COVID-19, and the segment already required a $193 million impairment charge against its New Mobility reporting unit. A segment whose physical operations can't run during a lockdown is not the place to keep scaling investment spend while cash preservation elsewhere in the business is becoming a real question.

Key Financial Metrics

Q1 2020 vs. Q1 2019 - consolidated, reported in USD

Metric	Q1 2020	Q1 2019	YoY
Revenue	$3,543M	$3,099M	✅ +14%
Adjusted EBITDA»	$(612)M	$(869)M	✅ loss narrowed 30%
Loss from Operations	$(1,263)M	$(1,034)M	⚠️ loss widened 22%
Net Loss attributable to Uber	$(2,936)M	$(1,012)M	⚠️ loss widened 190%
Net cash used in operating activities	$(463)M	$(722)M	✅ improved

Balance sheet: Dec 2019 vs. Mar 2020

Balance sheet metric	Mar 2020	Dec 2019	Change
Cash and Cash Equivalents	$8,165M	$10,873M	⚠️ -25%
Total Assets	$30,090M	$31,761M	⚠️ -5%
Total Liabilities	$17,772M	$16,578M	⚠️ +7%
Total Stockholders' Equity	$11,342M	$14,190M	⚠️ -20%
Long-term Debt, net of current portion	$5,703M	$5,707M	flat
Goodwill	$2,566M	$167M	⬆ Careem acquisition

Goodwill and intangible assets jumped sharply this quarter ($167M to $2,566M, and $71M to $560M respectively) reflecting purchase accounting for the Careem acquisition, which closed in most countries on January 2, 2020 - the deal previewed as pending in the Q3 2019 and FY2019 posts. Cash fell 25% to $8.2 billion, driven by $1,856 million of net cash used in investing activities (including $493 million of new marketable-securities purchases and Careem-related outflows) on top of $463 million of operating cash burn.

Uber's core ridesharing unit economics genuinely improved as COVID-19 hit - Rides Adjusted EBITDA more than tripled and consolidated Adjusted EBITDA loss narrowed 30% - but a $1.9 billion non-cash markdown on Uber's Didi and Grab stakes, driven by the March 2020 market crash, pushed the GAAP net loss to $2.9 billion and obscured the operating story for anyone reading only the headline.

Segment Results

Segment revenue and Segment Adjusted EBITDA, Q1 2020 vs. Q1 2019

Segment	Revenue Q1 2020	Revenue Q1 2019	Adj. EBITDA Q1 2020	Adj. EBITDA Q1 2019
Rides	$2,470M	$2,418M ✅ +2%	$581M	$192M ✅ +203%
Eats	$819M	$536M ✅ +53%	$(313)M	$(309)M ⚠️ loss +1%
Freight	$199M	$127M ✅ +57%	$(64)M	$(29)M ⚠️ loss +121%
Other Bets	$30M	$18M ✅ +66%	$(63)M	$(42)M ⚠️ loss +50%
ATG and Other Tech	$25M (Toyota/DENSO collaboration revenue)	$0	$(108)M	$(113)M ✅ loss -4%
Corporate G&A / Platform R&D (unallocated)	—	—	$(645)M	$(568)M ⚠️ +14%

Rides Take Rate improved to 22.8% from 20.8%, and Rides Adjusted EBITDA margin as a percentage of Rides revenue jumped to 23.5% from 7.9% - both driven by the same dynamic: less spent on consumer promotions and lower insurance expense from fewer miles driven, not a genuine unit-economics breakthrough. Eats' Take Rate also improved (to 11.3% from 7.8%), and Eats' revenue growth accelerated sharply on lockdown-driven demand, but the segment's dollar losses barely moved, meaning the extra volume flowed through at close to break-even marginal economics rather than driving real operating leverage. Freight and Other Bets both saw losses widen further on continued investment spend, with Other Bets additionally absorbing a $193 million impairment charge (recorded in G&A, not segment Adjusted EBITDA, but a direct consequence of COVID-19 impacts on certain New Mobility markets) and having to pause operations in some markets outright. ATG's loss continued its now three-quarter streak of year-over-year improvement.

Beyond the Usual

A $1.9 Billion Non-Cash Impairment on Didi and Grab, Driven by the March 2020 Market Crash

Uber holds significant minority equity and debt stakes in two ridesharing peers acquired through prior market-exit deals: Didi Chuxing (China, from Uber's 2016 sale of its China operations) and Grab (Southeast Asia, from Uber's 2018 sale of its Southeast Asia operations, discussed in this site's Q1 2019 post). This quarter, the carrying value of the Didi stake fell from $7,953 million to $6,299 million and the Grab debt-securities stake fell from $2,336 million to $2,109 million, based on observed valuation declines in each company's publicly-traded competitive peer group and representative stock-market indices since COVID-19 was declared a global pandemic. The combined roughly $1.9 billion markdown flowed through "Other income (expense), net" ($(1,795)M this quarter versus a $260 million gain a year earlier) and is the single largest driver of the quarter's GAAP net loss - a mark-to-market accounting effect tied to public-market sentiment about two other companies, not a cash outflow or an Uber operating result.

Careem Acquisition Closed; Goodwill and Intangibles Jumped Accordingly

Uber's approximately $3.1 billion Careem acquisition (pending as of the Q3 2019 filing, disclosed as closed in most countries in January 2020 in the FY2019 10-K) is now reflected in this quarter's purchase-accounting entries: goodwill rose from $167 million to $2,566 million and intangible assets from $71 million to $560 million, the clearest balance-sheet evidence yet of the deal's scale relative to Uber's pre-Careem intangible base.

Uber began recording COVID-19 response initiatives this quarter, including payments for financial assistance to drivers personally impacted by COVID-19 (recorded as a reduction to revenue) and the cost of personal protective equipment distributed to drivers (recorded as an expense) - both are explicitly added back in Uber's Adjusted EBITDA reconciliation, a new line item that didn't exist before this quarter and is worth watching for how large it grows as the pandemic continues.

Stock Price Since Last Quarter

Uber's stock actually rose through most of the first quarter before the COVID-19 crash: from a December 31, 2019 close of $29.74 to a January 2020 close of $36.29 (a 22% jump, likely reflecting optimism around the Careem close and continued post-lock-up stabilization), before falling to $33.87 in February and $27.92 by March 31, 2020 as the broader market sold off on pandemic fears - a 23% decline from the January peak, but still roughly flat to the December 2019 close on a full-quarter basis. The relative stability of the quarter-over-quarter closing price masks a much sharper intra-quarter round trip that closely tracked the broader market's own late-February-to-March crash.

Target Valuation Range

Too early to call a durable valuation. Uber's ~3.1x EV/Revenue multiple held roughly flat versus FY2019 despite the market turmoil in between, but with COVID-19's trajectory and duration entirely unknown as of this filing, there isn't enough visibility yet to call the stock over- or undervalued.

With 1,733.99 million shares outstanding as of April 30, 2020 and a March 31, 2020 close of $27.92, Uber's market capitalization was approximately $48.4 billion. Against long-term debt of $5.7 billion and cash and cash equivalents of $8.2 billion, enterprise value was roughly $45.9 billion - almost unchanged in dollar terms from the FY2019 post's ~$45.9 billion figure, despite the market turmoil in between. Against TTM revenue of roughly $14.6 billion (FY2019 revenue of $14,147 million plus this quarter's $3,543 million less the year-ago Q1 2019 revenue of $3,099 million), that implies an EV/Revenue^» of roughly 3.1x, essentially flat with the prior quarter.

A full DCF still isn't attempted: this is the first quarter with COVID-19 visibly affecting both Uber's own operations (Rides Gross Bookings declined, Other Bets operations paused in some markets) and its balance sheet (the Didi/Grab markdown), and the pandemic's trajectory and duration were entirely unknown as of this filing's May 2020 filing date. Any forward model built on this quarter's numbers would need to make a judgment call about how long the pandemic-driven Rides-margin improvement and Eats-demand surge persist - a call this site isn't prepared to make with only one data point.

---