On February 6, Uber reported its fourth-quarter earnings and summed up results for the year. A net loss of $8.5 billion is not the most interesting news. Studying the report, I found barefaced data manipulation, and now I will show it to you.

The latest financial document focuses on Non-GAAP terms Adjusted Net Revenue (ANR) and Adjusted EBITDA (AE). For those who do not know what does it mean, I’ll say a few words about Non-GAAP. Many companies have a need for their own key metrics and they invent adjusted metrics that do not meet the standards (GAAP) of the Securities Commission. And it’s kind of normal.

For example, Uber‘s adjusted revenue represents revenue less excess driver incentives. What is it done for? Let’s assume that the company takes 25% of the customer’s payment and gives the remaining 75% to the driver. However, in order to attract a new driver to the system, the service can allocate an additional 10% of bonuses in excess.

99 page of the IPO prospectus

Uber is convinced that it pays the drivers involved in the system enough and believes in an aforementioned conditional proportion of 25/75. Therefore, when an additional 10% of bonuses are paid, they are recorded in expenses and the revenue as a percent of gross booking is still equal to 25%. But de facto revenue is decreasing and in order not to get completely confused, this new revenue in Uber is called ANR.

I mentioned this principle of ANR formation in the article “What awaits Uber after the IPO”. It remains to figure out what Adjusted EBITDA is. I recommend reading the full list of adjustments that this indicator includes in any of the financial statements. Now let’s look at the values of AE:

The annual AE of the consolidated Uber business is negative and equal to $2.7 billion, but purely on rides, it is positive and is equal to $2 billion. It is logical to assume that the Eats segments with Freight, ATG, and other bets pull this most Adjusted EBITDA down to a whopping $4.7 billion. But, unfortunately, Uber does not publish structures of annual AE values. There are only quarterly:

AE for all segments, except for rides, is in the red for $713 million. That is, their Adjusted EBITDA should be up to $29 million, but it is not. For some reason, Corporate G&A and Platform R&D expenses are also deducted from the obtained value.

The ambiguity of terminology and formal logic left me with no doubt that Uber is manipulating reporting. What is it done for? I think in order to say, like, we know what we are doing because on rides we have long been in the black.

Do you think my assumption is nonsense? Just type “Uber rides business profit” in Google and you will see that Ars Technica, for example, already boldly says that the taxi division is profitable, because of EBITDA is positive, forgetting that this is not EBITDA at all, but adjusted Non-GAAP.

As a result, we have two Adjusted EBITDA — general and segment-specific. The origin of the general AE is shown in the table above, taken from the presentation for investors. Segment AE, as we already know, excludes Corporate G&A and Platform R&D expenses.

Corporate G&A also includes certain shared costs such as finance, accounting, tax, human resources, information technology and legal costs. Platform R&D also includes mapping and payment technologies and support and development of the internal technology infrastructure.

I will use an allegory to clarify what a positive AE of rides means. Imagine you have a restaurant. You know the cost of the most popular dish, taking into account the work of the cook. Let it be dumplings. So the difference between the cost of dumplings and its selling price is your AE.

Dishwashers, waiters, cashier, accountant, manager, taxes, and discounts — do not count. The main thing is the positive Adjusted EBITDA of dumplings. If you have achieved this, then it is likely that competent journalists will begin to write that your business will soon become profitable, because you have reached a profit in the dumplings segment.

Using adjusted EBITDA, a non-standard accounting practice, to measure profitability is inaccurate and ridiculous — Charlie Munger.

Going back to Uber. It’s not the first time when Dara Khosrowshahi talks about the goal of achieving a positive AE. But I was surprised that in the last presentation this goal is interpreted as profitability. The ride-hailing giant even in plans does not talk about real profitability.

Take a closer look at the chart above. Let me remind you that ANR is revenue less additional bonuses to drivers. And, logically, these bonuses are also deducted from expenses. Everything is fair. And now I will show you the magic of numbers.

In 2019, GAAP Revenue was $4.096 million, loss — $971 million. Adjusted Net Revenue is $3.730 million, loss — $615 million. In the first case, the ratio of loss to revenue is (23.8)%, in the second — (16.4)%. Well, cool? Here’s a simple exhibition for ease of understanding:

The funny thing is that I have already written about these methods, only in terms of the Core Platform Contribution Profit in the IPO prospectus. And if earlier it seemed to me that the company was trying to look more attractive for the sake of a successful debut on the stock market, now it seems to me that this is a real goal setting in Uber.

End of the Line

In 2019, the startup’s net loss was $8.5 billion, with revenue of $14 billion. Revenue increased by 26% YoY, but their growth is slowing in both percentage and absolute numbers. It is important to emphasize that with the decreasing rate of revenue growth, expenditures, on the contrary, had been increased. And this comes excluding stock-based compensation costs.

In July 2019, Uber laid off 400 of the 1,200 employees from its global marketing team. I expected at least a reduction in SG&A expenses, but since the beginning of the year, they have only increased. Adjusted EBITDA in the rides segment is positive, but the same value for the eats segment is in the red by $466 million in Q4 and $316 million in Q3. These are increases by 66% and 67% YoY accordingly. Uber Eats’ costs are growing linearly and they don’t even think about decreasing. Freight, ATG, and other bets are also consistently unprofitable.

Summing up, I want to say that over the year the Uber’s business hasn’t improved at all, or rather even worsened. However, the company has about $11 billion on hands and solid shares in Yandex.Taxi, Grab and Didi. There is probably enough time for Dara to show operations management miracles. And I would believe that they will happen if I hadn’t observed barefaced manipulations in the earnings report.