- Uber posted a $5.2 billion loss on Thursday, its largest ever, sending shares plummeting.
- A major chunk of that spending was on two things: stock-based compensation and driver rewards, both stemming from the company’s IPO in May.
- Other major costs for Uber include research and development, on things like self-driving cars, and sales and marketing, in order to keep growing.
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Uber lost a whopping $5.2 billion in the second quarter of 2019, the company revealed Thursday, its deepest quarterly loss ever thanks to an expensive initial public offering earlier this year
It’s a tremendous amount of money for any company, though a major chunk was thanks to one-off expenses, and is set to decline in coming periods, the company said. Still, investors weren’t happy with the results, and the stock plunged as much as 8% when markets opened Friday morning.
“The big picture is we want to be there any way you want to get around your city and I think we’re well on a path to do so in a profitable way,” CEO Dara Khosrowshahi told analysts on a conference call following the results.
Most Wall Street analysts viewed the quarter as in-line with what they expected, even as certain line items might have disappointed. Some even suggested the big selloff as a potential buy-the-dip opportunity
“We see Uber shares as one of the best long-term stories in the Internet and would take advantage of the weakness to add to positions,” Lloyd Walmsley, an analyst at Deutsche Bank, told clients. “We think a continued improvement in unit economics and better visibility into the path to profitability could draw more investors to do the work, and given compelling potential upside in a bull case, near term and long term, we would not wait to get involved.”
Here’s where Uber’s massive amounts of cash went during the three-month period ending June 31:
Stock-based compensation: $3.9 billion
Uber spent $3.9 billion on stock-based compensation for employees related to its IPO in May. Most of these expenses were in the form of restricted stock units, which are included in workers’ compensation packages.
Many of these insiders will be eligible to sell their stock soon, depending on when their specific lockup period ends. Lyft, Uber’s biggest US competitor, moved its date for that period to end forward to August 19 from a date in September that coincided with the company’s earnings quiet period.
In the next quarter, the stock-based compensation charges should fall dramatically.
“For Q3 2019 stock-based compensation, we expect an expense of $450 million to $500 million,” CFO Nelson Chai said on the call.
Driver rewards: $299 million
Uber also spent heavily on driver rewards connected to its IPO. The company spent $299 million in another one-time charge for those driver payments.
Khosrowshahi told CNBC Friday morning that these one-off charges, while painful, were well-deserved and important to retaining drivers and talent.
“The IPO for us was a once in a lifetime moment,” he said. “And it was a really important moment for the company. Some of what we did, like the driver appreciation reward, almost $300 million that we put in the hands of over a million drivers globally, was really important for us to do. It created a messy P&L from an accounting standpoint that I think is hiding underlying trends that are actually very, very healthy for the company.”
Research and development: $3.06 billion
Research and development is the biggest expense line for Uber that’s not a one-off related to the IPO.
Between its Advanced Technologies Group that’s developing self-driving cars in Pittsburgh, Toronto, and San Francisco; New Mobility that’s launching new e-bikes and adding public transit options to Uber’s app; Elevate, the unit dedicated to making flying taxis a reality; and improvements to its core ride-hailing business’s dispatching, routing, and fare algorithms, there’s plenty to spend money on.
Here’s how Uber defines R&D spend in regulatory filings:
Research and development expenses consist primarily of compensation expenses for engineering, product development, and design employees, including stock-based compensation, expenses associated with ongoing improvements to, and maintenance of, our platform offerings, and ATG and Other Technology Programs development expenses, as well as allocated overhead. We expense substantially all research and development expenses as incurred.
General and administrative: $1.6 billion
General and administrative spend consists of everything like rent for office space around the world, legal counsel, human resources, and other expenses.
“We expect that sales and marketing expenses will increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in sales and marketing to grow the number of platform users and increase our brand awareness,” the company has said in regulatory filings. “The trend and timing of our brand marketing expenses will depend in part on the timing of marketing campaigns.”
Sales and marketing: $1.2 billion
Perhaps not surprisingly, Uber spends massive amounts of money on marketing. Even despite laying off 400 employees from its marketing department in July (a move that won’t be counted in this earnings report, but will be reflected in the third quarter), the company says this number likely won’t be going down.
“The reorganization is about improving effectiveness and it’s about thinking about where we’re going to be for the next five years of the company versus where we come from,” Khosrowshahi said on the call. “My expectation is that our marketing spend, I can’t speak to the — for the second half of the year, but our marketing spend for the next few years is actually going to both increase and be more effective as a result of the changes that we’re making in the marketing organization.”
In regulatory filings, Uber says its sales and marketing spend consists “primarily of compensation expenses, including stock-based compensation to sales and marketing employees, advertising expenses, expenses related to consumer acquisition and retention, including consumer discounts, promotions, refunds, and credits, Driver referrals, and allocated overhead. We expense advertising and other promotional expenditures as incurred.”
Operations and support: $864 million
This line includes many of the driver-focused employees in operations support centers, like Green Light Hubs, throughout the world. This amount, though small, is likely to decrease going forward, Uber has said, as it becomes more efficient in “supporting platform users.”
Depreciation and amortization: $123 million
As time goes by, certain assets may lose value. For physical things, like buildings, vehicles, or machinery, this reduction is known as depreciation. For intangible assets, this is called amortization, and is slightly more concrete to calculate.
Unlike tangible items, assets that amortize do so on a “straight-line” basis, according to Investopedia, meaning the same amount decreases from an item’s value every period until it reaches zero. Examples of assets that might amortize include costs from capital raises, patents and trademarks, or other intellectual property.