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Why Uber Technologies Is Surging This Week

By Rich Duprey – Sep 24, 2021 at 8:22AM

Key Points

  • Uber has been a loss-generating business since it was founded 12 years ago.
  • The pandemic catapulted its delivery business to the forefront and it now generates half of all revenue.
  • Profitability for the rideshare and delivery company is now in sight.

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The ride sharing giant seems to have finally turned a corner.

What happened

Shares of Uber Technologies (UBER 1.45%) are soaring 14.4% higher this week, from last Friday's close, after the ridesharing giant said it might finally turn a profit. It expects third-quarter adjusted profits will range between a loss of $25 million and a profit of $25 million when the current quarter ends on Sept. 30. 

While that's a spread you can drive an Uber Eats vehicle through, it's better than the $100 million loss it predicted just last month and means that more than a decade after its founding, it just might be able to be a profitable business.

An Uber driver smiles at three passengers in the back seat.

Image source: Uber Technologies.

So what

While still best known as a third-party ride-hailing company, Uber now generates more money from its delivery business, which got a massive boost during the start of the pandemic and has continued growing since.

Last quarter it reported 50% of its total revenue came from delivery, or $1.96 billion, versus $1.62 billion from mobility. Over the first six months of 2021, delivery represented 54% of total revenue.

Uber says its improved outlook for the coming quarters is due to better-than-expected gains in adjusted EBITDA for both delivery and mobility. It says that should carry over into the fourth quarter as well when it expects adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, will be as much as $100 million compared to its previous guidance of simply being profitable.

Now what

The development of profitability is certainly welcome, even if it is on an adjusted basis, but Uber still faces a number of hurdles that could make this dalliance short-lived.

Numerous states are imposing new regulations that would force Uber to reclassify its independent contractor drivers as employees, which would entitle them to various benefits, and would significantly raise costs to the company. 

Also, states and cities are capping fees that delivery services can charge to restaurants, which would impede its ability to be profitable or remain so. Along with DoorDash and JustEatTakeaway's Grubhub, Uber is suing New York City over price caps it set on delivery during the pandemic. 

Uber Technologies was founded 12 years ago and has racked up massive losses in that time. In 2019 it posted an $8.5 billion loss, but was able to reduce that to $6.8 billion last year. It still won't be profitable according to generally accepted accounting principles (GAAP), but Uber could finally be on the road to making that a reality, too.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Just Eat Takeaway.com N.V. and Uber Technologies. The Motley Fool has a disclosure policy.

Stocks Mentioned

Uber Technologies Stock Quote
Uber Technologies
UBER
$28.75 (1.45%) $0.41
Just Eat Takeaway.com Stock Quote
Just Eat Takeaway.com
JTKWY
$4.77 (1.49%) $0.07
DoorDash Stock Quote
DoorDash
DASH
$55.19 (-3.38%) $-1.93

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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