Uber ditches the scooters, self driving cars, and helicopters. Replaces them with profits
In 2019 Uber’s CEO Dara Khosrowshahi unveiled their plans to build an “operating system for everyday life”. A vision where Uber would facilitate bringing things to you through Uber Eats and Uber Freight, as well as enable you to move around the city, be it through cars, electric scooters, autonomous vehicles, and even helicopters.
Cue the year 2020, the company suffered a 73% drop in bookings in Q2 and had to let go 25% of its workforce during the start of the pandemic. Dara’s ambitious plans were suddenly getting trimmed in what I believe to be one of the most spectacular growth reorganizations of modern corporate history
First the electric scooters got the axe. In May 2020, Uber announced it was “selling” its electric scooter division, Jump, to Lime Scooters. The deal terms stated Lime would not pay a single dollar to Uber, instead Uber would take a 16% stake in Lime plus invest $85MM on the merger.
Jump had been acquired by Uber just 2 years before for $200MM, and at the time of the deal, Lime commanded a $510MM valuation. This made the “sell” of Lime a 9-digit paper loss.
Then it was ATG’s turn. In December 2020, Uber announced it would be “selling” its self-driving cars division, ATG, to Aurora. The deal had a similar structure, Uber would sell its full stake in ATG and not receive a dollar in exchange. Uber would then invest $400MM cash in the freshly merged company, all around leading to a $3.65BB paper loss for Uber, plus the cash.
A day after the ATG’s deal announcement, Uber announced it was selling its air taxi division, Elevate, to Joby Aviation. Again, Joby would not pay a single dollar, but rather receive a $75MM investment post-merger.
Despite what it may look like, Uber is not imploding or scaling back, rather it is focusing on its strongest segments and buying options for the future. Just months before all of these deals, the company acquired Postmates for $2.65BB in an all-stock deal, to strengthen what has now become its fastest growth segment, Uber Eats.
Is this a new strategy that the company had to adopt in order to bear with crazy 2020? Not quite. The company has a long history of M&As: In 2016 it sold its Chinese operations to Didi for a 18.8% stake which was valued at $10BB earlier this year. Similarly, it sold its Southern Asia operations to Grab in 2018 for a 30% stake, valued at $4BB just a year later. Not to forget Russia, where it sold its operations to Yanded for a 28% stake, valued at over $1BB at the time.
The big difference is that this time around, the bottom line is in the centre of the scope. At a time where the company starts to trim fat, its investments in its two main segments are starting to mature, so for 2021 I am proposing Uber will turn profitable.
Through 2019, Uber’s Rides segment saw an average 69% QoQ bottom line growth, maxing out in Q4 2019 at $741MM before dropping in 22% in Q1 2020, bear in mind the first lockdown started in Q1 2020 (California went into lockdown March 15th, 2020. Uber’s Q1 ended March 31st, 2020).
The pandemic had the opposite effect on Eats, which saw an average 23% QoQ bottom line growth through 2020, setting its record for smallest loss at -$183MM in Q3 2020. Also, as a result of the pandemic, the company tighten its G&A expending, reaching a record minimum of $492MM in Q2 2020. Meanwhile we now know that ATG and alternative segments have been cut off completely and will no longer cause any bleeding.
Assuming the Rides rebounds, and Eats continues to growth, profitability is on the menu for Uber as early as late 2021. The formula is simple: Rides rebound + rationalizing S&M with Eats = break even 2021. And its diverse equity portfolio in worldwide last-mile transportation leaders adds to the attraction of the publicly traded company.
And, no, Prop 22 cannot stop it.
