One of the reasons I write Finance Gourmet is because of all the bizarre finance articles out there masquerading as news while actually serving as cheerleading, PR pieces for companies. It’s a little bit like those articles from White House press briefings that are basically stenographers taking the White House pronouncements as the full news while leaving out all sorts of necessary information just because the Press Secretary didn’t serve it up on a platter.
Uber Projects Quarterly Profit
The headlines out there in the financial press all say that Uber projects that it might have its first every quarterly profit next quarter. The facts? Well…
It’s always refreshing when the non-finance guys aren’t willing to go along with the company dog and pony show. I don’t get to quote Gizmodo a lot here on a blog about financial independence, but the guys over at Gizmodo, where they write about technology, get full marks for their headline, “Uber Says It’s on Track to Maybe Make a Fake Profit.”
Now THAT’S a legitimate headline. Even the subheadline spits some truth. Uber’s profit will be based upon adjusted EBITDA.
If you’re into investing enough, you’ve heard of EBITDA. It’s a real financial metric used in some cases to gauge profitability. But, Uber uses ADJUSTED EBITDA.
What is Adjusted EBITDA?
I’m glad you asked, but Uber isn’t.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization.
To get Adjusted EBITDA Uber makes up its own version of EBITDA and excludes all the normal expenses and then “adjusts” it by throwing in a whole bunch of other stuff that it doesn’t include when calculating profitability. As Gizmodo notes above, when you exclude a lot of your expenses from the calculations, it’s a whole lot easier for your revenue to exceed your expenses, or profit.
Uber can’t even see profitability with a telescope under normal EBITDA, even with new super-high Uber rates. For Uber to see regular gross profit would require the launch of the James Webb telescope. (It’s a metaphor. Just go with it and chuckle.)
Is Uber a Good Investment
If you’ve come here asking whether Uber is a good stock to buy right now, you must be new. I believe in companies that pay dividends and well-diversified, long-term portfolios. Uber doesn’t belong in either, unless you’ve got an ETF or mutual fund that has Uber in it as a speculative investment.
Uber is also getting a lot of its revenue from its food delivery business. There’s nothing wrong with that, but it isn’t what the company is built around. Uber also bought Drizly probably at the absolute peak. Now that people feel free to move around, most of them probably aren’t bothering to have their alcohol delivered, although I could be wrong. We’ll neve know because Uber deliberately does not break that out.
That being said, while Uber’s claim of profitability is laughable, it has been using the same metric all along. Like using Credit Karma for your credit score (or Credit Sesame, or CreditCheckTotal), the actual number isn’t the point so much as the direction the number is going in. If you are improving, then things are going better, regardless of what number you are using. In this case, Uber is burning through less cash than it used to. That’s good. Is it good enough?
That’s for investors who are not me to decide. Call me when Uber pays a dividend with an annual dividend yield of 2%. Until then, let the speculators guess what price the other speculators will guess.
About Brian Nelson
Brian is a former Certified Financial Planner (CFP) and financial advisor. Today, he writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended as financial or investment advice. At the time of publication, Mr. Nelson did not own any securities mentioned above, however, that may change at any time without notice.
ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.