After much hype, Uber Technologies UBER became a public company last month, opening at $45 a share, though the stock fell 7.6% on its first trading day. Recently, Uber reported its first quarterly earnings as a publicly traded company, but this shaky initial performance from the company has shareholders wondering when they can expect to turn a profit with their investment.
Uber reported its 2019 first quarter earnings after last Thursday’s closing bell. The company reported revenue of approximately $3.1 billion on a loss of $1.1 billion. The company attempted to justify the loss as the result of the investments they have made in the ride sharing market and other initiatives such as Uber Eats. These early losses have prompted Uber’s CEO Dara Khosrowshahi to make a comparison with Amazon’s AMZN first experiences on the market. While Amazon did premiere with losses its first year going public in 1997, its stock price has skyrocketed and it has since posted net income of $3.6 billion in its latest quarter.
The comparison between the two companies had warranted speculationeven before Uber went public. A key thing to note when comparing Uber to Amazon’s trajectory is that Uber’s revenue growth is beginning to show signs of slowing down. Another loss that calls for concern is the company’s core platform contribution margin, which turned negative in the last quarter of 2018; this may be indicative that Uber will be less profitable as the company grows.
Uber has also faced backlash from its own drivers, which Uber considers independent contractors.By declaring their drivers as independent contractors, Uber is not required to pay a minimum wage, provide benefits, or other compensation that their drivers feel they are entitled to. These sentiments prompted Uber drivers all across the country to go on strike as the company’s IPO unfolded. Disputes with their drivers could prove to be detrimental to the company, since it needs to keep its large portion of available ride sharing drivers to keep control of the industry’s market share. Going forward, this issue could be something shareholders would want to keep a diligent lens on.
Khosrowshahi addressed the issue concerning competition from its domestic competitor Lyft LYFT as well. The Uber CEO stated “competing on brand and product is – call it a healthier mode of competition than just throwing money at a challenge.” This optimistic approach towards its biggest domestic competitor likely provides some relief for shareholders.
Even though Uber’s unsteady start has made some investors wary, the company has some undeniable upsides. For instance, Uber operates in 63 countries and over 700 cities compared to Lyft’s U.S. and Canada-focused operations. The company also generates large amounts of revenue from each of its three business categories: personal mobility, Uber Eats, and Uber Freight; Uber’s diverse revenue streams gives it a complexity that its competitors lack. And, Uber has invested in autonomous vehicle technology, which could help eliminate the cost it would spend on paying drivers.
In a modern age with tech companies being on the verge of a daily innovative breakthrough, companies like Uber will always possess tremendous potential. The company’s initial imperfections and tremendous upside have helped it earn it a Zacks Rank #3 (Hold).
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