How do Uber’s Financials Compare to Other Tech Giants?
*You can find all the historical earnings numbers on each companies Investor Relations page.
Uber, since going public, has been a controversial stock. Many prominent analysts doubt their business model, while some think they are just valued too highly. Others, like the Motley Fool, are long the stock and think it has a chance to be another tech giant.
Personally, I can’t make up my mind. I’m fairly confident Lyft is a terrible business (zero-brand, terrible margins, and running out of cash), but I think Uber is not entirely out to lunch. However, they will likely need to leverage their scale in order to become successful.
Since Wall Street loves comparing them to the modern tech giants, I thought it would be interesting to see what Uber’s financials look like vs. other large-cap tech stocks during times when they were at the same market cap as Uber ($75 billion).
Facebook, Netflix, and PayPal, for various reasons, are the businesses I have chosen to compare to Uber. But first, let’s take a peek at Uber’s financials.
As of today’s close (7/1/2019), Uber has a market cap of $74.59 billion. Its price-to-sales ratio is 6.33, it pays no dividend, and it is unprofitable.
Uber’s balance sheet is solid, with $5.7 billion in cash on hand plus current assets ($7.9 billion) greater than current liabilities ($4.7 billion). This will give them a cushion to burn more money as they try and scale ride-sharing and Uber Eats. However, they have $7 billion in long-term debt that will need to be paid at some point with cash generated from the business.
Perhaps surprising to some, Uber’s top-line growth is not strong. Last quarter (Q1 2019) they had $3 billion in revenue, up only 20% YoY. They also had a net loss of $1 billion, although some of that is due to one-time IPO expenses. Gross margin was 45%, a rather low number for a software business. Lastly, a concerning trend with Uber is that sales growth has been slowing but growth in operating expenses has been accelerating.
PayPal at a $75 Billion Market Cap
According to Macro Trends, PayPal had a market cap of $75 billion during the 3rd quarter of 2017. Let’s take a look at how the business was growing during that time period.
In Q3 2019 PayPal’s revenue was $3.239 billion, up 21% YoY. This is very similar to Uber, but PayPal was actually cash flow positive and profitable during this time period. They generated $841 million in FCF that quarter, up 36% YoY. We also should take into account that PayPal had gross margins of 66% in 2017.
From an asset/liability standpoint, PayPal looked similar to Uber, except that they did not have any long-term debt on the balance sheet.
Today, PayPal has a market cap of $140 billion, a forward P/E of 34, and a P/S of 9. It has been on a tear the past few years and is up over 200% since spinning-off from eBay in 2015.
Facebook at a $75 Billion Market Cap
Facebook had a market cap of $75 billion in the third quarter of 2013, a little over a year after its IPO. Here is what their financials looked like during that time.
The company had revenue of $2.02 billion, which was up 60% from the previous year. They had gross margins of around 75% (again, a lot higher than Uber’s), and $736 million in operating income. Like PayPal, Facebook had a really clean balance sheet with zero long-term debt and minimal current liabilities.
Today, Facebook has a market cap of $584 billion, a forward P/E of 21.5, and a P/S ratio of 10. It has been one of the best-performing stocks this decade because of its consistent high-margin sales growth.
Netflix at a $75 Billion Market Cap
Netflix is probably the least like Uber from a business standpoint, but I still think it is worthwhile going through what their financials looked like at Uber’s size. This was in the 2nd quarter of 2017.
Q2 2017 revenue was $2.785 billion, up 32.3% YoY. They had a meek operating income of $128 million, and negative free cash flow of $608 million. Netflix has famously been unprofitable as it scaled, but one could argue they are able to do this because of the extreme reliability of their recurring revenue business model.
The balance sheet looked solid from an asset/liability standpoint, but Netflix did have $4.8 billion in long-term debt during this time (almost twice as little as Uber currently).
Right now, Netflix has a market cap of $166 billion, a P/E of 64, and a P/S of 10. They still have a lot of long-term debt and are not cash flow positive.
So What’s the Verdict? Is Uber Valued Fairly?
Every successful company doesn’t follow the same path. But the one thing they do have in common is consistently stellar financials. After going through this analysis, it is clear to me that Uber has worse margins, sales growth, and debt than PayPal, Netflix, and Facebook did at a $75 billion market cap.
Does this mean Uber deserves a smaller sales multiple (and therefore a smaller market cap)? In my opinion, yes. However, this does not mean Uber won’t turn things around in the future, or that they cannot transform into a good business. They just are a bad one right now.
Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed.