One of this year's most anticipated IPOs is running on fumes, but that can always change when Uber Technologies (UBER 2.47%) posts fresh financials this week. The world's leading ridesharing service reports its second-quarter results after Thursday's market close. It won't be Uber's first report as a public company, as it offered up its first-quarter earnings shortly after its May IPO. However, after three months of exchange-listed seasoning, it will be the ideal opportunity to break out of its rut as a broken IPO.
A lot can change in a single report, and Deutsche Bank analyst Lloyd Walmsley believes that Uber can start to shift investor sentiment for the out-of-favor ridesharing market with a strong financial update this week. Walmsley concedes that Uber is still years away from profitability, but if it can show that its take rates and contribution margin are improving in its flagship personal mobility platform, then investors will finally start warming up to Uber and Lyft (LYFT 0.51%). One can argue that Walmsely is biased. Deutsche Bank was one of the underwriters in Uber's IPO, and with the stock trading 13% below May's IPO price of $45, it has some clients to protect. It still doesn't mean that the analyst isn't right. With Lyft reporting this afternoon and Uber following up tomorrow, the market may have a completely different opinion of this investing niche by the end of the week.
Hungry for fuel
Revenue growth has been decelerating at Uber. Analysts see the ride-hailing leader's top line clocking in at $3.32 billion, 20% ahead of the $2.768 billion it reported for the second quarter of last year. The loss will be massive, but that's the fare that has to be paid as Uber tries to keep its fleet of drivers satisfied without sacrificing the compelling value proposition for its riders. Lyft is growing considerably faster as a much smaller player, but it faces the same profit-gnawing challenges.
There are plenty of moving parts at Uber. Investors will naturally want to make sure that there's sequential and year-over-year improvement in the number of monthly active platform consumers. We were at 76 million users at the end of the second quarter of last year and 93 million back in March of this year. It will also be comforting to see bookings growing faster than its consumer count, a good sign of engagement.
Deeper into the numbers, investors will want to see which way take rates are trending. Uber and Lyft are trying to keep their drivers happy, and Uber's been particularly promotional with its Uber Eats drivers lately. If Uber and Lyft can get their riders to pay more and their drivers to take less, we will naturally see widening margins. The model is scalable, but only if the leading players aren't anchored to cutthroat pricing and driver incentives.
This is going to be a big week for Lyft and Uber, but most eyes will be on Uber as the ultimate bellwether of this booming niche. Buckle up -- the road ahead may get bumpy.