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Uber’s Mounting Losses Overshadow Election Win in California
Uber Technologies Inc. reported a wider loss for the third quarter, offering a stark reminder of the challenges facing its business even after winning a political victory in California this week.
The chief executive officer, Dara Khosrowshahi, tried to reassure investors on a conference call Thursday that the company has a path to profitability. He’s confident Uber will achieve its goal of a quarterly adjusted profit by the end of next year and that the delivery business would reverse its losses next year, too, Khosrowshahi said.
After an initial recoil to the financial report sent the stock falling as much as 5.9%, the CEO’s comments blunted some of the reaction. The shares were down about 1% by the end of the conference call.
The third-quarter loss, excluding interest, taxes and other expenses, deepened to $625 million, though it was roughly in line with an average of analysts’ estimates compiled by Bloomberg. The loss narrowed from the previous quarter.
The coronavirus pandemic continues to limit travel spending. Sales for the ride-hailing company declined 18% to $3.1 billion, better than analysts expected.
The prospects for the business would be much worse if Uber hadn’t won a reprieve Tuesday from voters in California. The winning ballot measure, Proposition 22, will exempt Uber and other gig economy companies from a state law that sought to reclassify their drivers as employees. Uber contributed more than $57 million to the ballot initiative, helping make it the most expensive in state history.
Uber’s win at the polls sent the shares surging. Khosrowshahi suggested on the conference call that Uber would use a similar playbook in other states as it did in California. Policymakers in Illinois, New York and elsewhere have been considering stronger labor protections.
The California measure sets minimum pay restrictions and gives drivers select perks, such as a health insurance stipend. Those will have an $18 million impact on adjusted earnings for Uber in 2022 compared with $91 million if the company were required to reclassify workers, according to a report by Morgan Stanley. Uber expects to raise fares by about 5% in California to help offset costs related to Prop 22, Nelson Chai, the chief financial officer, said on the conference call.
The adjusted loss in the third quarter, an increase of $40 million from last year, doesn’t account for an array of one-off expenses. Those include Covid-19 response and efforts to promote the California ballot measure. The net loss was $1.1 billion. Uber ended the quarter with $6.15 billion in cash, down from $10.9 billion at the end of last year.
Delivery continues to benefit from the pandemic. Sales for that division increased 125% in the third quarter, exceeding estimates of 113%. The segment is mostly meal delivery, although newer, lower-margin categories including groceries, prescriptions and packages are also included. Uber suggested delivery could emerge from the pandemic as big or bigger than ride-hailing,.
The performance of Uber’s main business in each region mirrored the spread of the virus and government response there. Revenue surged in Asia but declined in Latin America. Sales from Uber’s largest market, the U.S. and Canada, decreased 30%. “The U.S. has been an overall drag on our global recovery,” Khosrowshahi said.
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