Uber has had a difficult year as the coronavirus has emptied offices, shut down bars, and smothered travel. Between January and June, the ride-hailing giant burned through 31% of its cash reserves and saw its overall app usage decline 26% from the first six months of 2019.
But in a twist, three analysts who follow the company told Business Insider that the pandemic's massive disruptions to daily life have only strengthened the long-term case for Uber's business model, which envisions a platform that can host a wide variety of transportation-related services beyond rides — like local deliveries, long-haul trucking, and public-transit logistics — on a global scale.
Uber CEO Dara Khosrowshahi has compared the scope of the company's vision to that of Amazon, which has branched out from selling books online into cloud computing, film production, and self-driving cars. Some have criticized the breadth of such ambitions, saying Uber will face a thornier path to profitability than Lyft, which is more narrowly focused on ride-hailing and the North America market.
In the middle of a global crisis, however, the strategy looks to be paying off. "The diversification, overall, it ended up really helping them," Dan Ives, an analyst at Wedbush Securities, said.
Eats has grown rapidly this year
While rides are way down, Eats has shined in a world where many restaurants have closed their dining rooms and dedicated their kitchens to pickup and delivery orders. Uber's delivery business grew by 79% during the first half of this year, and its adjusted loss before interest payments, taxes, depreciation, and amortization shrank by 8%. The company hopes its acquisition of Postmates will accelerate that trend through increased market share and lower costs. In the long term, Uber envisions its delivery service expanding far beyond meals: It has already started ferrying groceries, prescriptions, and packages on a limited scale.
"We're leveraging food delivery to build a real-time logistics engine for all local commerce," Khosrowshahi said during Uber's second-quarter earnings call.
Adding new products to its delivery service is a smart move, said Tom White, an analyst at DA Davidson, as Uber builds on its core strength — connecting consumers, drivers, and businesses — and opens it to larger retail markets that could offer higher profit margins. The more items Uber can deliver, the more customers will use its app while demand for rides is low, White said. In a post-pandemic world, that could give Uber's ride-hailing business a boost over competitors that had fewer ways to keep customers engaged when they were at home.
Investors may agree with White. Lyft's shares were priced at $43 at the beginning of this year, while Uber's sold for $30. Since January, that gap has closed. When markets opened on Tuesday, Uber was trading at $32, compared with Lyft at $31.
Benjamin Black, an analyst at Evercore ISI, once doubted the wisdom of Uber's diversification strategy. But he's come around. "Having several irons in the fire turned out to be beneficial to them," he said.
Uber is showing more discipline
Uber may be spreading out, but it's no longer seeking to grow at all costs. The company's management team has shown it has the discipline to scale back when needed, White said, as it continues to exit markets where it doesn't see a path to a dominant position. This year, the company has also laid off about a quarter of its workforce, closed 40 offices, and sold its electric-bike and scooter business to Lime.
"These guys have shown that they're willing to make tough decisions," White said.
Uber has predicted those moves will help it become profitable on an adjusted basis — excluding interest payments, taxes, depreciation, and amortization — before the end of next year. That would represent a major improvement over the second quarter of this year, when its adjusted EBITDA was -$837 million (good for a -44% margin), but Black, Ives, and White said they believed Uber would hit that target.
The cost cuts have reduced the revenue Uber will need to reach adjusted-EBITDA profitability, and demand for rides has been steadily improving in recent months, Black said. Add the fact that Uber is keeping a higher percentage of the money customers spend on rides and deliveries, and the company is in a good position to stem its losses next year, Black said, assuming there isn't another wave of shelter-in-place orders.
"I don't think it's a question of if they'll do it in 2021," he said. "It's more when."
Are you a current or former Uber employee? Do you have an opinion about what it's like to work there? Contact this reporter at mmatousek@bjinnox.com, on Signal at 646-768-4712, or via his encrypted email address mmatousek@protonmail.com.
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