Uber makes first operating profit after racking up US$31.5 billion of losses

Uber reaches long-awaited landmark after years of heavy spending. Photo / 123RF

Uber reported its first operating profit on Tuesday on the back of better control of costs, marking a turning point for the chronically lossmaking company after years of heavy spending in a controversial dash for growth.

The long-awaited landmark in the ride-hailing company’s finances came after it had racked up a total of US$31.5 billion ($51.3b) in operating losses since 2014, the first year for which it disclosed details of its finances.

Uber had previously undergone one of the most ambitious global expansions undertaken by a tech start-up, tapping mountains of cheap capital to subsidise rides and grab market share. The aggressive push involved it flouting taxi regulations in many countries and, to critics, made Uber a byword for Silicon Valley arrogance in the cheap-money decade between the financial crisis and the coronavirus pandemic.

“For most of our history profitable wasn’t the first thing that came up when you asked someone about Uber,” chief executive Dara Khosrowshahi admitted on a call with analysts. “In fact, many observers over the years boldly proclaimed that we would never make any money.”

“The easy availability of capital over the past decade obscured the poor unit economics of many businesses,” Khosrowshahi added. But he claimed that was never true of Uber, even as it burnt through cash in its efforts to take the lion’s share of the new ride-hailing market and force smaller rivals to retreat.

Uber’s financial turnaround has come on the back of a rebound in demand for ride-hailing following the pandemic and a successful expansion into food deliveries. Under Khosrowshahi, who stepped in six years ago when co-founder Travis Kalanick was forced out over a series of scandals, the company has also raised prices and acted aggressively to rein in costs, bolstering its profit margins.

Uber has reported after-tax profits in several quarters before, though only thanks to gains on disposals or revaluations of its equity investments.

By contrast, for the second quarter of this year, it reported US$326 million in pre-tax earnings from its operations, a turnaround from the operating loss of US$713m suffered a year before. Khosrowshahi said the company’s move to profitability, as well as its quarterly free cash flow of more than US$1b, reflected “disciplined execution, record audience and strong engagement.”

Despite finding more stable financial footing, Uber’s latest figures continued to reflect the effects of the price wars that have long characterised the ride-hailing and food delivery businesses. Price cuts earlier this year by its struggling US rival, Lyft, ate into the growth of Uber’s ride-hailing business in the latest quarter.

Meanwhile, competition with delivery company DoorDash weighed on growth in the delivery business, leading Uber to fall short of Wall Street forecasts with revenue growth of 14 per cent in the latest quarter, to US$9.23b.

However, steady growth in demand for Uber’s services, even as prices have risen, has underpinned Wall Street’s confidence in the durability of Khosrowshahi’s turnaround and brought a 90 per cent rise in its stock price over the past year, despite a near 6 per cent fall on Tuesday.

Uber also issued a stronger forecast than expected for its current quarter. It predicted that earnings before interest, taxes, depreciation and amortisation would reach US$975m to US$1.025b, compared with a Wall Street estimate of US$915m. Its bookings forecast of US$34b to US$35b was above the US$33.9b predicted by analysts.

Along with unrealised gains on investments, Uber reported a profit of US$394m for the quarter, or 18 cents a share, compared with a loss of US$2.6b the year before. Analysts had been expecting a loss of 1 cent a share for the period.

Written by: Richard Waters

© Financial Times