I couldn't sleep last night, so I began looking through Uber's last earnings results because there seems to be a major disconnect between sentiment towards the stock and my own perceived experience with their service (which is to say not good).
And boy did I find something interesting hidden in there.
For the three months ended on December 31st, 2023, they reported net income of $1.43 billion. That represents a 141% year over year increase and 66 cents per share against expectations of 17 cents- not bad at all. Way to go Dara!
https://preview.redd.it/ygiyo0h18psc1.png?width=722&format=png&auto=webp&s=cd5bb92852115b714901840476c4d6051198d58c
Let's dig into the numbers and see how they got such a massive increase.
https://preview.redd.it/amb9cpk28psc1.png?width=1003&format=png&auto=webp&s=16b1385156e6dabb81cf05ebc73139833581ea51
Here we can see that they are showing $1 billion from unrealized gains on debt and equity securities. The year prior that number was $752 million. So they are counting unrealized marked to market gains on their stock holdings as if they are net income from the business. Interesting. Let's examine further.
From the 10-Q:
Income from operations was $652 million, up $794 million YoY and $258 million quarter-over-quarter (“QoQ”).
Soooo, if my math is correct, they made $652 million from operations and $1 billion from unrealized capital gains, so essentially two thirds of their reported profit was from unrealized gains. So what are those holdings that made them so much paper money?
Later from the 10-Q:
During the three months ended December 31, 2023, unrealized gain (loss) on debt and equity securities, net primarily represents changes in the fair value of our equity securities including: a $659 million unrealized gain on our Aurora investment, a $414 million unrealized gain on our Didi investment, partially offset by a $91 million unrealized loss on our Grab investment.
So they have three major holdings:
- Aurora Innovations
- Didi
- Grab
They say they "earned" $659 million from their Aurora investment, $414 million from Didi, and lost $91 million from Grab.
So how much of these companies does Uber own? If we go by this headline from last summer, we can figure its about 326 million shares of Aurora:
https://preview.redd.it/1dmrlmf48psc1.png?width=1184&format=png&auto=webp&s=b0a6dfab21333c95ebc572991e204ffe8e85b0c8
So if they made $659 million in three months, the stock must have appreciated about $2.
Let's looks at the charts from Q3 (10/1/23-12/31/23):
https://preview.redd.it/ps61s2w68psc1.png?width=785&format=png&auto=webp&s=f5ad0fdbcb379c8e192f5b03c8a7fc8b94843237
https://preview.redd.it/9l4whws58psc1.png?width=787&format=png&auto=webp&s=b607d395efc1477eb3441812649d57757cecbff3
https://preview.redd.it/77ylgjb88psc1.png?width=784&format=png&auto=webp&s=5a2e9e94c5da7e9ff440ec5a8b386c11059a63eb
This one looks interesting. On September 29th, AUR closed at $2.35. On December 29th (the last trading day of 2023), it closed at $4.37. Wait- that's $2.02! Exactly the amount they reported times their holdings of 326 million shares!
Similarly, on September 29th, DIDIY closed at $3.23 and on December 29th, it closed at $3.95, for a nice $0.72 gain. Given that they reported a $414 million gain in the same period on that investment, they must own about 575 million shares.
Finally, GRAB closed on September 29th at $3.54, and December 29th at $3.37, for a loss of $0.17. Given that they claim a loss of $91 million in that period, they must own about 535 million shares.
Okay, so to summarize, Uber reported $1 billion of profit off three unrealized gains:
- Aurora Innovations ($659 million gain)
- Didi ($414 million gain)
- Grab ($91 million loss)
It seems a bit sketchy to me that 2/3 of profit was reported on unrealized gains in a very speculative portfolio, but whatever, the market seems fine with it.
But that be