The Return of The Exchange & On-Demand Profitability

The Exchange is resuming publication after a brief pause. This week will feature an analysis of Q1 performance within the global venture capital landscape. However, we are beginning today with a focused look at Uber, Lyft, Deliveroo, and DoorDash.

Specifically, we’ll examine the capacity of companies offering on-demand services – in diverse sectors – to achieve profitability.

Uber's Profitability Outlook

Uber serves as the central focus of this discussion due to a recently published SEC filing detailing its recent results. Crucially, the filing includes forward-looking guidance regarding the company’s potential to generate earnings this year.

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When we refer to “making money,” it’s important to clarify that this doesn’t necessarily equate to traditional net income calculated under GAAP (generally accepted accounting principles).

Instead, Uber is offering its shareholders projections concerning its future adjusted profitability. Genuine, sustained profits remain a goal for the future.

Analyzing the On-Demand Landscape

Let’s dissect Uber’s recent statements, evaluate the validity of its profit projections, and compare its situation to that of its competitors.

We will also consider whether the substantial investments made during the expansion of the ride-hailing and food-delivery industries will ultimately be recouped.

Here's a breakdown of key considerations:

• Uber’s Guidance: A close examination of the SEC filing is essential.
• Competitive Analysis: How do Lyft, Deliveroo, and DoorDash compare?
• Scaling Costs: Were the initial investments in growth justified?
• Future Profitability: Is sustainable profit achievable for these companies?

The question remains whether the initial costs associated with scaling these on-demand services can ultimately be offset by future earnings.

Uber’s Projected Profitability

Lyft initially informed investors in 2019 to anticipate positive adjusted EBITDA by the last quarter of 2021. Simultaneously, Uber projected achieving full-year positive adjusted EBITDA. These were related, yet distinct, forecasts.

Uber subsequently advanced its profitability timeline to Q4 2020, a target it ultimately failed to meet.

The onset of the COVID-19 pandemic prompted Uber to revert to its original adjusted profitability projections. This occurred as both Uber and Lyft experienced substantial declines in revenue.

The core ride-hailing operations of these American companies suffered significant setbacks following the implementation of COVID-19 lockdowns. Uber mitigated these losses by focusing on its Uber Eats service, while Lyft lacked a comparable secondary business.

Both companies reported considerable financial losses throughout the previous year. However, expectations for a recovery in the ride-hailing market provided some stability in the stock market.

Uber recently released a new filing with the Securities and Exchange Commission (SEC) outlining performance improvements that are likely to be well-received by investors who supported the company during the pandemic’s most challenging phases.

To clarify, last month represented Uber’s highest-performing month to date in terms of gross sales generated through its platform. While positive, this achievement isn’t as impactful as it initially appears.

The substantial growth of Uber Eats has altered the company’s revenue composition, increasing the proportion derived from food delivery. However, food delivery is generally less profitable than Uber’s primary transportation business.

Consequently, Uber has achieved a new record in gross bookings – total spending on the platform – but this record is comprised of revenue streams with lower profit margins.

This observation is presented without criticism. It is simply a factual assessment.

The most crucial aspect remains Uber’s continued expectation of achieving “quarterly Adjusted EBITDA profitability in 2021.” This is a positive indicator. Uber’s stock price has risen approximately 2% this morning following the announcement, while Lyft’s shares have decreased by 1.4%.

The significance of this information lies in the recent public offerings of companies like DoorDash, which continues to operate at a loss. Similarly, Deliveroo and GoPuff, both recently public, also haven’t yet attained profitability. Instacart is preparing for a public offering, and is not currently consistently profitable.

Uber’s reaffirmation of its profit forecast represents modestly encouraging news for a range of both private and public companies, from direct competitors to comparable businesses. While simply maintaining its previous commitments isn’t exceptionally noteworthy, a further delay in achieving adjusted profits would have been considerably more concerning.

Such a continued postponement would inevitably lead to diminished investor confidence.

Therefore, today’s news from Uber is beneficial for Uber itself, somewhat positive for Lyft, reasonably good for Deliveroo and DoorDash, and likely acceptable for GoPuff. However, it is not exceptional news for any of these companies. Truly great news would have been the reporting of GAAP net income from Uber some time ago.

However, we are currently in this situation, and Uber’s potential to generate modest profits by the end of 2021 is a preferable outcome.

The Exchange will resume its coverage of the startup landscape tomorrow morning!