Next week more European and Japanese companies will take over releasing earnings but given their important the US earnings will get the most headlines. In particularly we expect Uber’s earnings release on Monday to be key focus as one of the most anticipated IPOs in recent years has disappointed with shares closing yesterday at 31.50 compared to the IPO price of 45.
Analysts are expecting revenue growth of 15% down from 37% a year ago highlighting the issue for investors; growth rates are coming down much faster than anticipated. In addition, cash flows from operations worsened in Q2 pushing the negative free cash flow to $1.1bn in just a single quarter. In our view, Uber only has a few couple of quarters to show a clearer path to profitability in order to avoid investors beginning to a more touch assessment of valuation multiples. The key issue for Uber is drivers costs which could jump by 20% if drivers are forced to be treated like employees as a recent bill in California is suggesting. European regulators also want Uber to be treated as a regular transportation company and it might give access to growth, but it comes with higher complexity and costs. If Uber is forced to treat drivers as employees can they then retain those drivers? And will the costs reach levels where Uber is not significantly cost competitive with normal taxi companies? Many unknown answers for investors.