Uber generates massive pile of free cash flow in Q2

4 Mins read

Uber generates massive pile of free cash flow in Q2

The question of whether Uber would be able to self-support was at least partially answered Tuesday with the company’s second quarter earnings report.

In its Q2 digest, the American ride-hailing and food delivery giant reported positive free cash flow, indicating that it can now self-fund, putting to rest — at least in today’s market — lingering concerns that it would one day run out of cash.

The former unicorn and present-day public company traded sharply higher in pre-market trading after reporting its second-quarter financial performance. Shares are now up 14.4% as of 10:30 a.m. EDT.

That Uber was able to generate free cash flow in the second quarter should not be entirely surprising; the company’s first quarter numbers included positive operating cash flow and sharply less negative free cash flow. Operating cash flow indicates how much a business’s operations consumed, or generated cash, while free cash flow is the same metric, less capital expenses.

Free cash flow is not profitability in traditional terms, as other expenses, including the non-cash cost of share-based employee compensation and changes in the value of equity investments, come into play.

Uber was unprofitable in net income terms in the second quarter. Still, positive free cash flow and other signs of health were more than enough to put wind in Uber’s sails — gas in its tank? electrons in its battery?

Uber’s second quarter

In the three months ending June 30, Uber’s gross bookings — the value of all commerce executed on its platform — rose 33% to $29.1 billion from $21.9 billion in the year-ago Q2. From that total volume, Uber generated revenues of $8.1 billion, up 105% from its year-ago revenues of $3.9 billion in the same period.

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The company’s revenue growth was impacted, the company notes, by “a change in the business model for our U.K. Mobility business and the acquisition of Transplace by Uber Freight,” so we should read the percentage-growth figure for Uber’s top line with a grain of salt.

Regardless, the company’s gross bookings expansion and resulting revenue lift provided operating leverage. Uber’s adjusted EBITDA rose from -$509 million in Q2 2021 to $364 million in Q2 2022. Similarly, Uber’s free cash flow rose from -$398 million in the year-ago quarter to $382 million in the second quarter of 2022.

Ride-hailing vs. delivery

Notably Uber’s growth engine has once again flipped. Before the pandemic, Uber’s ride-hailing business was its leading unit. However, during early COVID-19-impacted quarters, Uber’s food delivery business took over as its growth driver.

Now with the pandemic waning in economic terms, the company’s expansion driver has once again changed hands, with ride-hailing gross bookings rising 120% in the second quarter on a year-over-year basis, and its food delivery gross bookings rising a more modest 7%.

Delivery still hung on as the unit leader, in terms of gross bookings, a smidge ahead of ride-hailing and far beyond its Freight division. Gross bookings for delivery was $13.87 billion, ride-hailing was $13.36 billion and freight was $1.8 billion in the second quarter.

Slower growth in its delivery efforts did not mean that Uber’s work to bring you dinner is unprofitable in adjusted terms. Each Uber business segment of note generated positive adjusted EBITDA in Q2 2022, with ride-hailing bringing in $771 million, delivery $99 million, and its nascent freight efforts $5 million; company expenses cut the sum of those figures by $511 million in adjusted EBITDA terms, but the overall health of Uber’s growth drivers appears strong.

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Yeah, but…

Past the rosy non-GAAP metrics like amended EBITDA or cash flow, Uber was deeply unprofitable in the second quarter, losing $2.6 billion in the second quarter of 2022.

Drivers of that loss, when compared to its adjusted EBITDA figure, included $243 million worth of depreciation and amortization, $470 million worth of stock-based expenses and $1.7 billion in other expenses.

Drivers return

One of the bigger issues in the world of ride-hailing has been attracting and retaining drivers. Uber initially used incentives to lure drivers back from those quieter COVID-19 pandemic days. But now it seems the company is backing off of that and using improvements on the app instead.

Uber even noted that part of what drove its adjusted EBITDA margin improvement YoY was a “meaningful reduction in driver supply investments.”

Those app improvements, which CEO Dara Khosrowshahi listed in a letter to shareholders, includes showing drivers what they’ll earn and where they’re going before accepting a trip. That program, known as Upfront Fares, will roll out across most of the U.S. in the coming months.

Investment drag

Perhaps the biggest drag on Uber’s bottom line was its stakes in other companies, notably autonomous vehicle technology company Aurora, Grab and Zomato.

Lest you forget, Uber sold its autonomous vehicle unit Uber ATG to Aurora back in December 2020.

The complex deal didn’t involve Aurora paying cash for Uber ATG, a company that was valued at $7.25 billion following a $1 billion investment from Toyota, DENSO and SoftBank’s Vision Fund. Instead, Uber handed over its equity in ATG and invested $400 million into Aurora, which gave it a 26% stake in the combined company.

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Aurora has since become a publicly traded company following a merger with a special purpose acquisition company. Aurora’s share price hit a high of $17.11 in November and has since fallen 84%.

That stake, along with Uber’s investment in Indian food delivery firm Zomato and Grab, has made a rather negative mark on its results.

In the second quarter, Uber lost $1.1 billion from its Aurora investments, $520 million from Grab and $245 million from Zomato. Uber also reported that a $1.4 billion loss on its Didi investment in the first quarter was partially offset by a $259 million gain the second quarter of 2022, according to Uber.

Those losses might be motivating Uber to sell its stake in Zomato. Uber acquired Zomato shares after it sold its local Uber Eats business to the delivery firm in early 2020 — yet another complex deal similar to its sales of ATG to Aurora and Jump to Lime.TechCrunch reporter Manish Singh, citing an unnamed source, reported that Uber plans to sell its 7.8% holding in Zomato. Uber is working with Bank of America Securities on the sale.


Source: Techcrunch

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