Ridesharing giant Uber (UBER 3.95%) doesn't make any money. In fact, it's not even close to turning a profit. It wasn't close before the pandemic, and it's not close now. Through the third quarter of 2020, Uber's cumulative net loss since the company was founded totaled $22 billion.
Of course, the pandemic has devastated demand for ridesharing. But even before the pandemic, Uber's dominant market share in the U.S. wasn't nearly enough for the company to turn a profit. Yes, Uber recently began touting that its ridesharing business was profitable on an adjusted EBITDA basis. But adjusted EBITDA is a meaningless metric. "Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA," famed investor Charlie Munger said earlier this year.
With Uber unable to turn a profit despite dominating the market for ridesharing, the bull case for the stock for a long time centered around self-driving cars. Today, Uber takes a cut of the revenue generated from each ride. When self-driving cars eliminate drivers, Uber could take it all.
There were always a few problems with this idea. For one, self-driving car technology is still far from being robust enough to be used is any situation without human intervention, and it may never reach that point. Second, Uber would need to have some sort of advantage in self-driving technology over its rivals, beating out all the other tech companies pursuing the same goal. Third, Uber's asset-light model of not actually owning any of the cars in its fleet would presumably be turned on its head. Fourth, given that rides are essentially a commodity, prices would plunge assuming rivals also had access to self-driving cars.
Out with self-driving cars, in with food delivery
Uber is now reportedly in talks to sell its self-driving unit, a clear indication that the company is giving up on the idea that self-driving tech will turn into a competitive advantage . So, what's the bull case now? Food delivery, apparently. The pandemic has greatly increased demand for delivery from restaurants, and Uber is doubling down by acquiring rival Postmates for $2.6 billion. The company will face off against market leader DoorDash, which recently filed to go public.
Uber's delivery business is growing at a breakneck pace. Adjusted revenue from the delivery business nearly tripled during the third quarter of 2020. But like the ridesharing business, this is all probably structurally unprofitable.
DoorDash has a 50% share of the U.S. local food delivery market, according to its S-1 filing. The company lost $149 million through the first nine months of 2020 on revenue of $1.9 billion. Let me be clear: Right now is the absolute best environment for restaurant delivery that there has ever been and ever will be. Restaurants were entirely closed for dine-in service during the worst of the pandemic in many areas, capacity limits are still in place in some places, and diners remain skittish about returning to restaurants. At the same time, restaurants have been forced to turn to delivery just to survive. This is the golden age of third-party restaurant delivery, and even the overwhelming market leader can't make the numbers work out.
The problem is that restaurant deliveries are a commodity. Nobody cares how the food gets to their door, as long as it arrives on time without any problems. Nobody cares who Chipotle uses as their delivery partner as long as it works. There's no pricing power whatsoever.
And after the pandemic is over, it's hard to imagine expensive restaurant deliveries being nearly as popular as they are right now. Once you add the delivery fee, service fee, and tip, getting a meal delivered is an expensive proposition. Some of this growth is going to reverse itself.
Uber is currently valued at around $84 billion, right around its all-time high. The self-driving narrative is dead. The food delivery narrative fundamentally doesn't make any sense. What's the bull case for Uber stock, then? There isn't one. This is a company that sells commodity services and is valued like a tech company. Stay very far away.