Uber Finally Becomes Free Cash Flow Positive After Years in the Red

Mark Hake

Uber Technologies (UBER) reported on Aug. 2 that it delivered its first-ever positive free cash flow (FCF) result in Q2. This means it generated positive cash flow after all meaningful cash expenditures, including after net income losses, working capital needs, and capital expenditures (capex).

This took investors by surprise and the stock surged almost 19% to $29.25, up $4.65 for the day on Aug. 2. This also had a positive overflow effect on other ride-hailing companies such as Lyft (LYFT), up over 16.3% for the day, and DoorDash (DASH), up over 5.1%. They are both due to report their Q2 results on Thursday, Aug. 4.

Uber said that its Q2 operating cash flow was $439 million, up $780 million year-over-year (YoY). And after deducting capex spending, free cash flow came in at $382 million, also up $780 million YoY.

This is the first time the company has become FCF positive since going public on May 10, 2019, over 3 years ago.

The company also said its gross bookings were up 33% YoY, but its revenue was up 105% YoY to $8.073 billion for the quarter. That means its FCF margin was 4.70% for the quarter.

In addition, the company produced adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $364 million, up $873 million YoY. EBITDA is another form of cash flow, although it does not deduct working capital changes or capex spending like FCF does. Nevertheless, its FCF was slightly higher at $384 million than adj. EBITDA.

Another factor that pleased investors was a huge increase in its "take rate." This is the ratio between revenue and gross bookings and represents the fees that the company takes on every order. The take rate rose to 26.6%, its highest ever.

Outlook for Q3 and the Stock

Moreover, investors were happy to see that the company projected that Q3 will continue to show positive EBITDA. That could also imply that its free cash flow could come in positive in Q3 as well.

That could bode well for the stock going forward if investors believe that the company is no longer burning through its cash holdings as it has been doing. At the end of June 30, Uber still had $4.397 billion in cash and $526 million in investments for a total of almost $5 billion ($4.923 billion) in total liquidity.

That represents less than 10% of its now $57.6 billion fully diluted market capitalization. So the company has plenty of cash resources to keep moving forward, even if it does not raise its FCF higher.

The Wall Street Journal wrote that the CEO Dara Khosrowshahi meant business when he told his employees in May about his intentions for the company. Although he did not say it at the time, this included making the company FCF positive.

Nevertheless, the fact that its cash burn has stopped is a very welcome change to investors which could boost the share price over the next several quarters.

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Mark R. Hake, CFA writes articles at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as a Beehiiv free newsletter on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

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