Quick thoughts on Uber’s IPO S-1 Filing

After the close today, Uber (finally) filed to go public. Below we offer some quick thoughts after waiting for a very long time to see their numbers.

First off, there is a lot going on in this filing. Uber has been private a long time and there are many moving parts under the hood. We miss the day when companies filed to go public with ten line Balance Sheets.

Second, technically speaking Uber was profitable in 2018, but only as the result of selling their Southeast Asia and Russian businesses. Set aside those one-time gains of $4.9 billion, and the company lost almost $4 billion in 2018. The good news is that their losses shrank from 2017. The bad news is they lost $4 billion in 2018.

In all fairness, the company is growing at an incredible clip. Trips grew by 40% last year, Bookings grew by 45% and revenue by 42%. It is hard to argue with this chart below showing growth in bookings.

That being said, there are some clear signs of wear and tear in the model. Take the chart below showing monthly trips per user. They are essentially flat. People sign up and then take 5 trips per month. We do not know how hard the company has been trying to grow this. Maybe they still have some levers to pull, but there seems to be a steady state for most people.

Given that they are close to maxing out on geographic expansion – having exited China, SE Asia and Russia (see next chart) – this is a concern for future growth. .

More concerning is this chart which shows margins for their “core business”, stripping out their many experiments. Margins are declining, and if you can make out the footnote, the reasons they cite are “increased investment in Uber Eats”, which is a reasonable investment, but also “competition in ride sharing”, which is a bit alarming giving that the market it consolidating

That being said, we found the way that they calculate their addressable market interesting. This data is the start of an interesting review of their future strategy, going into micro-mobility (scooters, bikes) and beyond. So there is some reason to believe their growth potential is still quite large.

It is interesting to note how tight their margin profile is, as shown by this chart bridging bookings to profits. It is hard to read, but the top level summary is they booked $49.8 billion, gave $38 billion to drivers, and after all their other expenses generated $0.9 billion in profit. Full credit to them for breaking this out in such detail.

At the end, we reached the statement of cash flows and the balance sheet. The company has about $6.4 billion in cash on hand on $7.8 billion in debt. And while the accounting losses are large, the cash burn is ‘only’ about $1.5 billion a year. Again, that is a lot of money, but given their growth it’s not unreasonable to see them being able to reach profitability, some day.

Admittedly, we did a very quick read of a very complex document. There is a lot of interesting stuff in there, and a lot going on. But if we had to sum up our impression of the state of Uber, it would be “Not as bad as we expected”.

We think there are things here for both Bears and Bulls. We will revisit those when we get some more time with the document. The Street is going to spend a lot of energy in coming days picking apart the numbers, and comparing this to Lyft. And, of course, we still do not know the valuation Uber is seeking. There is clearly a valid investment case to be made for the company, even one that is only losing $3 billion a year.

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