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Fare cutting puts the brakes on Uber’s revenue growth

Uber’s revenue growth slowed and costs rose in the final three months of 2018, as the ride-hailing company spent money on price wars around the world and invested in new businesses ahead of a planned initial public offering.

Net revenue rose 24 per cent from the same period a year earlier, to $3.02bn. But the annual growth rate decelerated every quarter of 2018, from 70 per cent in the first quarter to 63 per cent in the second and 38 per cent in the third.

Uber’s overall gross bookings — the total amount it takes in before paying drivers and funding promotions, refunds, and government taxes and fees — rose 37 per cent from the last quarter of 2017, to a record $14.2bn, but at a slower rate than 49 per cent in the second and third quarters. The yearly comparison excludes south-east Asia and Russia, two markets that Uber exited in 2018. Compared with the third quarter, bookings were up 11 per cent.

The slowing revenue growth reflects a lower “take rate” — the amount the company keeps from fares after paying drivers and couriers — as the company cut prices in markets including Brazil, France, India and the Middle East, but continued to pay drivers the same amount. Uber and its rivals subsidise heavily to win customers and drivers to their apps.

As Uber prepares for an initial public offering this year, investors are watching to see what its long-term growth trajectory will be. Chief executive Dara Khosrowshahi has said he does not want to get to profitability too quickly, opting instead to invest in other growth areas from food delivery and freight booking to autonomous driving that could help Uber become “the Amazon of transportation”.

Using generally accepted accounting principles, Uber’s net losses narrowed to $865m in the fourth quarter, compared with $1.1bn a year ago and $1.07bn in the third quarter, thanks to a $398m reduction in the company’s provision for income taxes.

But on an adjusted basis, Uber’s loss before income, taxes, depreciation and amortisation surged 88 per cent from a year ago, and 60 per cent from the prior quarter, to $842m, reflecting rising costs from competition in ride-hailing and food delivery, as well as investments in bikes, scooters, and freight, and autonomous research.

Operating expenses rose 12 per cent to $2.38bn from a year ago, due to higher spending on sales and marketing, research and development and operations and support.

Food delivery has become a particularly heated market, thanks to rivals such as DoorDash, which has been increasing its market share in the US. Both DoorDash and Uber have received big cash injections from SoftBank’s $97bn Vision Fund.

Uber Eats is on track to reach $10bn in gross bookings this year, up from $6bn in 2018. An Uber executive told investors on a conference call on Thursday that run rate made Eats alone bigger on a gross bookings basis than Lyft, Uber’s US ride-hailing rival.

For the full year of 2018, Uber’s net revenue rose 43 per cent, to $11.3bn, and gross bookings rose 45 per cent to $50bn, excluding south-east Asia and Russia.

GAAP net losses totalled $368m, down from $4.5bn in 2017. The adjusted ebitda loss decreased to $1.8bn in 2018 from $2.2bn the previous year.

Uber told investors its rides, Eats and Freight businesses all had positive contribution margins in 2018 — a profitability measure reflecting the proportion of revenue available to cover fixed costs.

Thursday, 14 February, 2019

“Last year was our strongest yet, and Q4 set another record for engagement on our platform, said chief financial officer Nelson Chai in a statement.

The company had $8.22bn in cash as of December 31, up from $6.55bn at the end of the previous quarter, thanks to the proceeds of its $2bn bond sale in October and a $500m investment deal with Toyota struck in August.

Uber filed confidential paperwork for a public listing with the SEC in December, as did rival Lyft. The US government shutdown in January put a halt on responses from the agency, but both companies have begun to hear back about their filings now that the government has reopened, according to people familiar with the matter.

Bankers have advised Uber it could see a valuation above $100bn in its IPO, which is expected later this year. Lyft, which is expected to debut as soon as March or April, was valued at $15bn in its last private funding last year.

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