December 1, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Uber earnings ‘show progress that management needed to deliver,’ analyst says

Arete Research Managing Director Richard Kramer joins Yahoo Finance Live to evaluate Uber earnings and the outlook for the stock.

Video Transcript

JARED BLIKRE: Welcome back. Uber shares getting a nice little pop there. You can see up about 12% on your screen, following its third quarter earnings report. The ride sharing company reported a greater than expected net loss of 1.2 billion, but revenue topped analysts’ estimates. Joining us now is Richard Kramer, managing director and founder of Arete Research. Thank you for joining us here today. Want to ask you about your first impression of the results.

RICHARD KRAMER: Well, I think this is a doctrine of relatively low expectations for Uber. And I think most of the tone of the questions on the call was about whether they were starting to see a macro slowdown. And that was the real fear. And given the guidance for the coming quarter was reasonable in terms of sustaining a mid-twenties underlying growth rate in gross bookings and continuing to show that progress that management needed to deliver to, frankly, keep their jobs in moving towards profitability, proper profitability for the business, well, that was a bit of a relief.

JARED BLIKRE: Well, you mentioned– you alluded to the possibility of somebody maybe losing their job. What are the stakes here? What are the kind of numbers that investors want to see out of Uber to achieve that true profitability, or I guess, enhanced profitability, whatever you might call it.

RICHARD KRAMER: Well, certainly. Uber has been an investment banking darling for a lot of reasons, mostly because it creates a swirl of transactions from a very transaction oriented management team. It has a long track record of steep losses. And on a GAAP basis, it had $9 billion of losses thus far this year. And they’ve laid out targets that in 2024, they’re going to have a steady march towards $4, $5 billion of adjusted EBITDA.

Now, we can debate the adjustments. There are stock-based comp. There are restructuring charges. There are writeoffs of many of the stakes that were, a few years ago, being promoted by the investment bank analysts as a great sum of the parts story. But the guidance that you’re showing in your screen right now shows that they are continuing to put up reasonable growth numbers in what people thought would be a much weaker consumer discretionary environment.

And I think management absolutely needs to execute on this because there’s not another act for Uber. If they’re not able to deliver a profitable marketplace business on a cash flow– a free cash flow basis, then you’d probably think of other fates for the company.

JARED BLIKRE: Well, that’s interesting. Well, let me ask you about another company, Lyft here, and maybe these fates are interjoined somehow. They’re expected to announce earnings very soon. I believe this is a company you cover as well. We’ve got some other competitors in the marketplace. But what’s going on with Lyft?

RICHARD KRAMER: So Lyft, we had a sell on for a very long period of time. We’ve gone neutral on it because the enterprise value of the company got down to a level low enough that you could actually see it as an acquisition target at some stage. And it really depends on whether the founder CEOs want to throw in the towel and join up with another food delivery company, another logistics company, an auto company, or any manner of options.

But, you know, you’re down to a low to mid-single digit billions of enterprise value for the company. It has a brand that people recognize. And so the thought would be that Lyft might pursue the synergies that Uber seems to be getting now finally between its delivery and mobility businesses with by finding a partner. So Lyft is one that I don’t think there’s a case to aggressively buy it. But at the same time, it’s a potential acquisition candidate. So it doesn’t really stand out as a potential short.

JARED BLIKRE: Yeah, it sounds like we could be sitting here in a year or two years debating a different kind of field here in terms of mobility. Really appreciate your insights, Richard Kramer of Arete Research.