Uber’s revenue tumbles as food delivery outpaces rides
Uber Technologies Inc. generated more revenue from delivering food than transporting people for the first time last quarter, but it failed to offset a steep and prolonged decline in ridership brought on by the COVID-19 pandemic.
Sales fell 29% in the second quarter to $2.24 billion, ending a decade of unchecked growth. The loss in the quarter widened, but Uber maintained Thursday that it will achieve its goal of turning an adjusted profit by the end of next year. Food delivery has become a central part of that strategy, even more so after the company’s $2.65-billion deal to buy Postmates Inc.
The number of people using Uber’s platform each month, a closely watched measure of engagement, shrank 44% in the second quarter to 55 million customers, much worse than analysts’ expectations of a decline of about 7%. Shares sank about 3% in extended trading after the financial report.
The sharp drop in ridership in the second quarter mirrors the overall contraction of the travel industry. With many retailers, schools and workplaces closed or at reduced capacity, transportation use will probably remain low for the foreseeable future, and Uber could be “permanently impaired,” said Daniel Morgan, a portfolio manager at Synovus Trust Co. “Continued high COVID-19 case levels will likely weigh on ride-sharing demand throughout 2020 and into 2021,” he wrote in a note to clients.
In an acknowledgment of the long-term consequences of the pandemic, Uber said this week that its own employees could work from home until the end of June 2021. As the effects weigh on the business, Chief Executive Dara Khosrowshahi has turned to cost-cutting. He eliminated about a quarter of the workforce in May and closed dozens of offices.
Uber even pared back its global food delivery operation by exiting more than a half-dozen markets to make room for expansion in more developed ones. After bidding unsuccessfully for Grubhub Inc., Uber agreed to buy Postmates last month in a bid to add more U.S. customers.
“It was a tough quarter, but I’m incredibly proud,” Khosrowshahi said on a conference call to discuss the results. “We pivoted in an incredible way.”
In the quarter that ended in June, gross bookings from delivery doubled to $6.96 billion. Mobility, which is predominantly made up of ride-hailing but also includes scooter rentals, declined 75% to $3.05 billion. Many investors pay close attention to gross bookings to track the total value of spending with Uber. Analysts expected less from delivery and more from ride-hailing in the quarter.
The loss excluding taxes, interest and other expenses was $837 million. Analysts on average expected an adjusted loss of $883 million, according to data compiled by Bloomberg.
Although the company once trumpeted exotic projects such as self-driving vehicles and helicopter rides, those businesses were scarcely mentioned in its financial report, reflecting humbler ambitions and a focus on delivery and mobility.
Uber didn’t address the effect that a possible worker reclassification of its drivers could have on operations. Uber was dealt setbacks over the last year in California, where a new law is designed to give employee benefits to its workers, and New York, where courts have sided with some drivers. The states represent two of Uber’s largest markets.
Failure of a November ballot measure in California that Uber is pushing could substantially drive up the company’s costs. If Uber reclassifies its drivers as employees, ride prices would increase as much as 30% in San Francisco and as much as 120% in the less populated Inland Empire, where demand is sparse, according to an analysis by Uber.