Uber Q1 2020 – Paint by numbers.

Uber is a master at numerical storytelling.

• Uber produced mixed results but has benefitted substantially from the pick-up in demand for food delivery which helped it to paint a rosy picture of its outlook with numbers.
• Q1 2020 revenue / net income was $3.54bn / LOSS$2.94bn ahead of revenue forecasts of $3.28bn but below net income estimates of LOS$0.93bn.
• To be fair to Uber a big part of this loss was the $1.80bn non-cash write-down of its holding other ride-hailing companies that it received when it was ejected from China, Russia etc.
• The ride-hailing business has fallen by 80% YoY in April but in areas where lockdowns are being released, there are signs of stabilisation.
• Furthermore, the fact that 95%+ of all rides are made in the user’s home country means that Uber is not reliant on a return of international travel to get this business back on its feet.
• However, one should not get excited about the 50% bounce back touted in the conference call.
• This because even with a 50% bounce back, a business that was down 80% is still down 70% from its peak meaning that ride-hailing is very far from being out of the woods.
• The good news is Uber Eats where demand has jumped thanks to no one being able to go out to restaurants relying instead on take-away orders being delivered.
• Bookings in April are up 89% YoY and the annualised run rate of bookings is now over $25bn but again one should not get too excited as it was already growing at 55% YoY with an annualised booking rate of $18.7bn in Q1 2020.
• This means that the pandemic has lifted demand for Uber eats around 33% above its previous trajectory which is good and will help to cushion the impact of the collapse in ride-hailing which is not going to come back to previous levels anytime soon.
• Uber has done an excellent job at pivoting to focus on deliveries, but I am not convinced that this will be enough to make up the difference.
• This is because unless one was already specifically a take-away food business, the economics are unlikely to provide a sustainable business.
• Most dine-in restaurants do not make any real money on the food but instead rely on a large mark up on beverages to make their money.
• This opportunity has now gone out of the window which combined with the fact that the restaurants that do reopen are going to have to work out how to stay afloat with around half or less than half of the covers that they had before due to social distancing.
• Add this to the fact that many people have discovered that they have stoves and ovens in their houses leads me to think that the outlook for the food and beverage industry is almost as bad as it is for the airlines.
• Hence, I think that growth in Uber Eats is likely to drop once restaurants start going out if business highlighting a need to expand its reach further into logistics which is exactly what it is going.
• Uber is indubitably in a better position than Lyft that did not have the foresight or luck to leverage its platform to include deliveries, but the overall outlook is much tougher than the company would have us believe.
• However, Uber has the financial resources and a decent enough management team to weather this crisis but as ever with these sorts of companies, it is the valuation of the shares that causes me angst.
• If I had to be anywhere in the sharing economy, it would be in the pure plays that offer asset sharing where no other humans are involved.
• This would be things like bike, scooter and car-sharing and certainly not ride-hailing, house sharing or office sharing.
• I do not have to be in this sector any more than I have to be in equities in general and so I would continue to avoid the whole lot.