Questions Persist About About Uber’s Profits—And Its Stocks Fall Further

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Topline: In yet another embarrassing showing as a public company, Uber shares fell even further below its IPO price Monday amid rising trade tensions with China and caution among investors when it comes to ride-hailing.

  • At close, Uber stock was trading at $37.26, which is nearly 19% below its original IPO price of $45.
  • It didn’t help the already beleaguered stock that Wall Street had its worst day in four months as trade tensions between the U.S. and China ratcheted up, with China imposing retaliatory tariffs on U.S. goods.
  • But beyond a bad day for the market, investors are cautious, and see little chance of near-term profitability for Uber as the company continues to burn cash, said Ygal Arounian, a research analyst at Wedbush Securities, which is bullish on Uber.  

It’s all about profitability, but long-term investors aren’t sweating: Investors are worried that Uber is losing $1 billion per year and may never be profitable. Competitor Lyft also had a disappointing first quarter, causing the stock to tumble, throwing cold water on the near-term ride-hailing market.

“Investors are trying to digest what overall profitability can be. You typically don’t see companies go public generating billions of dollars in losses and to get from where we are today to a clear path to profitability is going to take some time,” Arounian said.

But those betting on Uber say this is just a bump in the road and won’t have any impact on Uber’s long-term potential, especially when it comes to UberEats, UberFreight and autonomous cars.

“The near-term stock dynamics have nothing to do with Uber’s opportunity as a business in the long run to capture a pretty meaningful market,” he said. “If they keep doing what they need to do, the stock performance should follow.”

Still, Uber has a host of challenges. The company’s subsidies to lower the cost of rides and drive growth are unsustainable, said Ted Ladd, dean of research and professor of entrepreneurship at the Hult International Business School, which offers a one-year MBA program, in an email. Driver complaints about pay and impending regulation, such as a ride-hailing tax in San Francisco, are concerns as well.

“These companies are now addicted to cash from public markets to fuel growth, with only a distant hope for profits to fuel growth organically. Even a small wobble in financial markets will be amplified within these leveraged, exposed companies,” Ladd said.

How Khosrowshahi is reacting to the news: In an internal memo to employees—many of whom have stock options in the company—Khosrowshahi conceded that he expects “tough public market times over the coming months.” But, he said, Uber will be judged by its long-term performance. He compared Uber to Amazon and Facebook, which also had rough post-IPO periods, but are now valuable companies.

“There are many versions of our future that are highly profitable and valuable, and there are of course some that are less so. During times of negative market sentiment, the pessimistic voices get louder and the optimistic voices pull back,” Khosrowshahi wrote.

The memo was first reported by The New York Times Mike Isaac on Twitter.

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