Uber says it’s set to break even or make an operating profit for the first time ever ahead of schedule—you know, on paper, so long as you squint your eyes at the books in the Uber-approved way.
According to Reuters, Uber said on Tuesday that it expects to break even this quarter, according to its definition of “adjusted EBITDA,” or earnings before interest, taxes, depreciation, and amortization. This is more or less a fancy way of saying that Uber claims to be making money before you factor in all these things, which historically has meant it wasn’t. Uber is projecting anywhere from a profit to a loss of $25 million on the adjusted EBITDA basis for the third quarter of 2021, up from a prior estimate that it would continue to lose $100 million.
MKM Partners analyst Rohit Kulkarni told Reuters that this is a “clear positive sign” for Uber. That’s true, because the company has by normal accounting standards shed billions for years as if dollars were fire ants trying to climb its legs. As TechCrunch noted, in 2020, it lost $6.7 billion by normal accounting rules, but managed to slim that number down to $2.7 billion by applying its extremely generous definition of adjusted EBITDA as follows:
We define Adjusted EBITDA as net income (loss), excluding (i) income (loss) from discontinued operations, net of income taxes, (ii) net income (loss) attributable to non-controlling interests, net of tax, (iii) provision for (benefit from) income taxes, (iv) income (loss) from equity method investments, (v) interest expense, (vi) other income (expense), net, (vii) depreciation and amortization, (viii) stock-based compensation expense, (ix) certain legal, tax, and regulatory reserve changes and settlements, (x) goodwill and asset impairments/loss on sale of assets, (xi) acquisition and financing related expenses, (xii) restructuring and related charges and (xiii) other items not indicative of our ongoing operating performance, including COVID-19 response initiative related payments for financial assistance to Drivers personally impacted by COVID-19, the cost of personal protective equipment distributed to Drivers, Driver reimbursement for their cost of purchasing personal protective equipment, the costs related to free rides and food deliveries to healthcare workers, seniors, and others in need as well as charitable donations.
TechCrunch noted it is extremely unusual for a company to list 12 separate categories of exclusion in adjusted EBITDA, although breaking even by that metric has become Uber’s main pitch to investors as it continually fails to actually make money. This has mainly worked because the company’s speculative hype machine has ensured those investors continue to pour in subsidies.
In the past, as the Wall Street Journal noted, Uber has only very rarely managed to book profits by “one-time gains from certain investments and divestitures.” Those examples include merging its operations in Russia and South Asia with competitors in 2018, or in the second quarter of 2021, its investment in Chinese ride-hail firm Didi (which Uber was conveniently able to post right before Chinese regulators took actions that slashed its shares by over 50%).
“EBITDA is sometimes used by companies with very large fixed assets, large intangible assets (such as goodwill acquired after a major merger) or significant debt financing to give outsiders a crude sense of a company’s ability to meet its outstanding financial obligations. Uber has none of these characteristics,” transportation analyst Hubert Horan wrote on Naked Capitalism in February 2020. “More importantly, Uber’s reported ‘EBITDA’ numbers exclude billions of expenses other than interest, taxes, depreciation and amortization.”
Still, Uber is claiming that it is cutting losses and growing revenue, and one has to concede that the company has sheer inertia going in its favor.
In a Securities and Exchange Commission filing submitted on Tuesday, Uber predicted gross bookings of $22.8 billion to $23.2 billion for the current quarter, which CNBC reported is an adjustment from a prior earnings call estimate of $22 billion to $24 billion. In the prior second quarter, Uber booked $8.6 billion in mobility (taxis, bikes, and scooters) and $12.9 billion for delivering meals from restaurants.
Horan, the Naked Capitalism analyst, wasn’t impressed by the company’s recently released second quarter results.
“... It is impossible to estimate the separate profitability of ridesharing and food delivery, or how the profitability of each business is changing over time from the very limited data Uber includes in its SEC filings,” Horan added in a post this month. “... But despite major flaws in the metric used ... food delivery appears to be a financial disaster that significantly reduced Uber’s GAAP [generally accepted accounting principles] net income. Even after excluding large chunks of relevant costs, the contribution margin of food delivery was negative 10% in the first half of 2021 and was 30 margin points worse than ridesharing.”
Some of the reasons Uber has become so tantalizingly close to making a theoretical, heavily adjusted profit include massive layoffs, as well as skyrocketing costs for rides and jaw-dropping fees for food delivery. Note that despite relying on a vast network of human misery, all this has failed to generate real profit so far for anyone but executives and investors who cash out during its many stock fluctuations.
Uber stock was up by over 12.5% as of early Tuesday afternoon as investors continued to roll the dice. Its price of almost $45 a share was far lower than its peaks of over $60 earlier in 2021, but at least far better than the start of the pandemic in the U.S. in March 2020, when it hit below $15 a share.