Uber (UBER -2.94%) is easily the most recognizable brand in the relatively new ride-hailing industry. In addition to its strong position in its core business, the company is pursuing several other opportunities. There, its food delivery app Uber Eats, its recent venture into the fintech industry via Uber Money, and the company's involvement in the fascinating (although still very much nascent) world of self-driving cars.
With all these potential avenues for growth, one would think investors would be tripping over themselves to purchase shares of the ridesharing giant, but that couldn't be further from the truth. Instead, the company has been struggling since its IPO and is down by 40% year to date. With that in mind, here is why the skepticism surrounding Uber's prospects is wholly justified.
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Uber is losing money at a frightening pace
Uber released its third-quarter financial results on Nov. 4, and the company's performance showed some encouraging signs. Uber's trips grew by 31% year over year, while its gross bookings and revenue increased by 29% and 30%, respectively; Uber's revenue came in slightly ahead of the consensus analyst estimates.
Perhaps the metric that grabbed the most attention, though, was the company's bottom line. Uber reported a net loss of a little more than $1.1 billion, or $0.68 per share, which worsened by 18% compared to the year-ago period. That is a lot of money to lose in a mere three months, and perhaps it wouldn't be such a big problem if it weren't for the fact that this is by no means a one-off. During the second quarter, Uber reported a net loss of more than $5 billion.
It might be tempting to ignore Uber's bottom line and focus on its top-line growth instead. After all, the company is losing money in part because of its efforts to build a lasting competitive advantage. If these efforts pan out, those who decide to stick with the ride-hailing pioneer will be handsomely rewarded. However, it is difficult to imagine that some of the company's growth initiatives will make a material impact anytime soon. That is particularly true of Uber's self-driving cars, which are still too futuristic to become a reality in the near (or even not-so-near) future. In other words, there are enough questions about Uber's outlook to warrant serious skepticism about whether it is worth an investment today, especially given the amount of cash it is burning.
Uber did announce it would be "profitable" by 2021, but that comes with two caveats. First, the company was referring to its adjusted earnings before taxes, expenses, depreciation, and amortization (EBITDA) being in the green. That isn't being profitable per se, although it would be a step in the right direction. When Uber's bottom line will actually stop spilling red ink is anyone's guess.
Second, during the company's third-quarter earnings conference call, Uber's management wasn't exactly forthcoming with details on how it plans to achieve that goal, which certainly shouldn't sit well with investors. One thing is for certain: Uber's bottom line will continue to be a problem in the near future.
The key takeaway for investors
Uber still boasts the largest market share in the ride-hailing industry at about 70%, according to data from Second Measure. Its overwhelmingly strong position in this market, as well as its forays into other industries, might be enough for some to jump on the bandwagon. However, for those who are dissatisfied with the amount of money Uber is losing -- and are skeptical about the company's future -- there are other growth stocks to consider buying.
