A couple of weeks ago, No. 2 ridesharing player Lyft (LYFT 5.34%) said it was hoping to become profitable just two years from now. CEO Logan Green made the announcement at a tech conference, but it's important to recognize that Green was referring to adjusted EBITDA profits instead of GAAP profits. Larger ride-hailing leader Uber (UBER 1.13%) reported third-quarter earnings Monday night and has now set out a comparable time frame to become profitable, also on an adjusted EBITDA basis.
Here's what investors need to know about Uber's path to profitability.
Rides are profitable when you exclude a bunch of stuff
With shares of both companies trending lower since hitting the public markets earlier this year, Uber and Lyft are both keenly aware of investor skepticism surrounding poor unit economics and staggering cash burn. That's why both tech platforms have been pulling back on promotional spending and competing less aggressively on price alone, while simultaneously trying to relay to investors that profitability is on the horizon.
"Our results this quarter decisively demonstrate the growing profitability of our Rides segment," Uber CEO Dara Khosrowshahi said in a statement. "Rides Adjusted EBITDA is up 52% year-over-year and now more than covers our corporate overhead." The core Rides segment generated $631 million in adjusted EBITDA, more than the $623 million in adjusted corporate operating expenses. On a GAAP basis, Uber posted a consolidated operating loss of over $1.1 billion.
"Our current target with a ton of hard work from all of our teams is to get to total company EBITDA profitability for the full year 2021, as we see the benefits of global scale and efficiency and the best tech talent out there," Khosrowshahi said. Lyft's target is to reach adjusted EBITDA profitability in the fourth quarter of 2021.
However, Uber's declaration was undermined when management deflected questions from analysts regarding exactly how Uber would become profitable.
Short on details
When asked about Uber's "biggest sources of leverage" by Morgan Stanley analyst Brian Nowak, CFO Nelson Chai pointed to "the opportunity, the potential for the Rides business to become much more constructive" and that "we think there is a road map out there." Chai also emphasized that management is "still in the middle of our planning mode."
Goldman Sachs analyst Heath Terry asked for details on cost reductions and whether or not there was a specific revenue threshold Uber needs to reach to achieve profitability. Chai said Uber is starting to gain some leverage with its corporate infrastructure, which should reduce spending going forward and improve cost efficiency. "We don't think there is a big magic bullet, we're just continue to grind it out quarter over quarter," Chai vaguely offered. Khosrowshahi added, "There is execution ahead of us, but we absolutely think we can pull this off."
When pressed by SunTrust analyst Youssef Squali on what underlying assumptions Uber is making regarding its Eats food delivery segment, Chai demurred. "So, again, we don't want to get too stuck on 2021," Chai said. "As Dara said, we're still in the process of working through it. What I would tell you, it does not predicate that Eats has to be either profitable or breakeven on an EBITDA margin basis."