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REUTERS/Carlo Allegri
Uber CEO Dara Khosrowshahi.
LOST IN TRANSLATION

Uber’s earnings are confusing by design

By Alison Griswold

“Sometimes simplicity is a beautiful thing,” Uber CEO Dara Khosrowshahi said May 30, after an impossibly complicated introduction to the company’s first-ever earnings call.

For the quarter ended March 31, 2019, newly public Uber reported a $1 billion loss on $3.1 billion in revenue. It said 93 million people used at least one of its services each month during the quarter, taking a combined 1.6 billion trips, a category that for Uber includes rides in cars, trips on bikes and scooters, and food deliveries.

What to make of those results? Revenue was up 20% from the same period in 2018. Most of that growth came from food-delivery platform Uber Eats, which grew revenue a whopping 89% from the same quarter the previous year. The number of trips booked on Uber and its monthly active users increased more than 30% each.

Net income, meanwhile, was so much lower than the same time last year—the first and to date only quarter in which Uber reported a profit, thanks to sales of international operations—that the company described the year-over-year change as “not meaningful.”

Should we even be looking at revenue and net income, anyway? Uber also reports “adjusted net revenue” 1 and “core platform adjusted net revenue.” 2 Uber calculates these adjusted figures, known in industry terminology as non-GAAP financial measures (GAAP being “generally accepted accounting principles”), by taking its original revenue figures and deducting certain incentives it pays to its independent-contractor workforce. Adjusted net revenue is consistently lower than revenue.

1
"We define Adjusted Net Revenue as revenue less (i) excess Driver incentives and (ii) Driver referrals."
2
"We define Core Platform Adjusted Net Revenue as Core Platform revenue less (i) excess Driver incentives and (ii) Driver referrals."

What is “core platform,” you ask? Why, one of Uber’s two operating segments. It includes rides, Eats, and “other core platform,” the last of which is primarily Uber’s “Vehicle Solutions” business. This “other core platform” shouldn’t be confused with “Other Bets,” which is Uber’s second operating segment. “Other Bets” mainly includes the company’s trucking business, Uber Freight, plus “new mobility” (electric bikes and scooters).

Got that? No? Confused? Yeah, me too. The market seemed equally uncertain what to make of it. Uber’s stock drifted upward immediately after the company shared its results, then dipped down. By the time the company wrapped up its investor call, shares had settled up about 2.5% in after-hours trading, to a bit less than $40. Uber closed out regular trading on May 30 at $39.80, 11% below its $45 IPO price.

Few would ever describe quarterly financial reports as a breezy read, but Uber’s is so complicated you need a glossary of terms to get through a single sentence (one is included on pages 10 and 11 of the company’s 13-page earnings release). Reading Uber’s results, your attention is constantly redirected, from actual figures to adjusted ones, from segment to sub-segment to sub-segment-level revenue reconciliations (a real mouthful).

“While the canvas that we operate against seems complex, our story is simple,” Khosrowshahi said on the investor call. “We’re the global player. We are the largest player in personal mobility.”

Why does such a simple story require such a complicated financial report? Perhaps because there are certain key elements of that story Uber doesn’t want investors to focus on. For instance, Uber may not want investors to pay too much heed to the excess driver incentives 3 and referrals 4 it pays out, the former of which ballooned to $291 million on Eats in the latest quarter, a 200% increase over the first quarter of 2018. That 89% boost in Eats revenue looks less impressive when you realize Uber tripled incentive payouts to achieve it.

3
"Excess Driver incentives refer to cumulative payments, including incentives but excluding Driver referrals, to a Driver that exceed the cumulative revenue that we recognize from a Driver with no future guarantee of additional revenue."
4
"Driver referrals refer to payments that we make to existing Drivers to refer new Drivers onto our platform."

It could be that all the jargon and complicated terminology is designed to distract from one key fact: Despite how big and multi-layered Uber has become, the core businesses of hiring drivers to provide rides to customers hasn’t changed much since the company was founded in 2009. And as the $1 billion loss Uber reported in the latest quarter confirms, it’s still unclear how that business will ever make money.