It has been a bumpy past few quarters for the equity markets, and the technology sector has the battle scars to prove it. The hypergrowth unicorns that came of age during the most recent bull market are now an endangered species, but a few of them just might have what it takes to survive the current market conditions and position themselves for the next leg upward.
One such company is Uber Technologies (NYSE: UBER) which is one of the pioneers of the ridesharing industry. Don’t call Uber a taxi company however, the firm will be quick to point out that it is a technology platform since it neither owns the vehicles nor employs the drivers. Instead, it relies on independent contractors who use drive their vehicles, utilizing the Uber platform to connect with riders.
Uber has operated like most technology unicorns during its life, pursuing growth at all costs strategy with the massive cash burn that comes with it. The company may just be ready for its next act though, as it recently reported positive cash flow for the first time in its history, with $382 million reported in the second quarter. The results were driven both by passenger and delivery revenue, as the Uber Eats restaurant delivery segment is starting to scale. Uber now boasts a fleet of drivers of more than 5 million which the investment community was happy to see, alleviating fears that drivers would be reluctant to work due to soaring gas prices. In a sign that is good for Uber as well as a possible harbinger of strength for the economy as a whole, the company also reported that trips have rebounded to levels above those from before the pandemic.
Uber is entering a stage where it will need to closely manage expenses and monitor operations as the era of easy funding rounds and sky-high valuations is either over, or at least on an extended pause. The company recently raised $390 million from selling its stake in Indian food delivery service Zomato, and could be a pivot away from highly competitive and highly unprofitable food delivery markets. Avoiding money-losing ventures may turn out to be just as important for the company’s prospects as any growth initiative.
Now that Uber has demonstrated that it can generate positive cash flow, investors that have ignored the company thus far may want to take notice. One quarter does not make a trend, however, so there still may need to be some “prove it” type quarters before it is embraced by a wider population of investors. Uber is the big dog in the rideshare space, and if it can sustain the positive momentum it at least deserves a spot on investors’ watchlists.
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