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How to manipulate financial reporting - the example of Uber

On February 6, Uber published its fourth quarter results and summed up the results of the year. A net loss of $ 8.5 billion is not the most interesting news. Studying reporting , I discovered undisguised data manipulation, and now I will prove it to you.



The recent financial document focuses on Non-GAAP terms Adjusted Net Revenue (ANR) and Adjusted EBITDA (AE) . For those who do not know, I’ll immediately say 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.

For example, Uber’s adjusted revenue is revenue minus additional driver benefits. Why is this done? Suppose that the company takes 25% from the customer’s payment and gives the remaining 75% to the driver. However, to attract a new taxi driver to the system, the service can allocate 10% of excess bonuses.


99 IPO prospectus page

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

this principle of forming ANR in the article “ What awaits Uber after IPO ”. It remains to understand what Adjusted EBITDA is . I recommend that you familiarize yourself with the entire list of adjustments that this indicator includes in any of the financial statements. Now let's look at the values ​​of AE :



AnnualAber of all Uber is minus $ 2.7 yards, and purely on trips it is positive and equal to $ 2 billion. It is logical to assume that the Eats segments with Freight, ATG and others pull this most adjusted EBITDU down by a whopping $ 4.7 billion. But, unfortunately, Uber does not publish annual AE values in these areas. There are only quarterly:



AE in all segments, except for trips, is obtained in the red by $ 713 million. That is, their Adjusted EBITDA should be up $ 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 was manipulating reporting. Why is this done? I think in order to say, they say, we know what we are doing, because on trips we have long been in the black.

Do you think my assumption is nonsense? Drive into the search for “Uber rides business profit”. For example, Ars Technica already boldly says that the taxi division is profitable because 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 related to a certain segment. The origin of total AE is shown in the table above, taken frompresentations to investors . Segment, 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 the allegory in order to explain what a positive AE on trips 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 the selling price is your AE .

Dishwashers, waiters, cashier, accountant, manager, taxes and discounts - do not count. The main thing is a positive adjusted EBITDA for dumplings. If you have achieved this, then probably competent journalists will begin to write that your institution will soon become profitable, because you have reached a surplus in the dumplings segment.

Going back to Uber. It’s not the first quarter that Dara Khosrovshahi talks about the goal to achieve positive AE. But I was surprised that in the last presentation this goal is interpreted as a surplus. The company does not even plan to voice real profitability.



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

In 2019, GAAP Revenue amounted to $ 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 is a picture for ease of understanding:



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

Apotheosis


In 2019, the startup’s net loss was $ 8.5 billion, with revenue of $ 14 yards. Revenues increased by 26% YoY, but their growth is slowing both in percentage terms and in absolute numbers. It is important to emphasize that with the declining pace of revenue growth, expenditures on the contrary increased. And this happens minus stock-based compensation .



In July 2019, Uber fired 400 of the 1,200 employees in the marketing department, and I expected at least a reduction in the cost of SG&A bones , but since the beginning of the year they have only increased. Adjusted EBITDAin the travel segment is positive, but the direction of food on this indicator is minus $ 466 million in Q4 and $ 316 million in Q3. These are (66)% and (67)% YoY. Food expenses grow linearly and they don’t even think to decrease. Directions Freight, ATG and Other bets are also stably unprofitable.

Summing up, I want to say that over the year the situation in Uber has not improved at all, or rather even worsened. True, the company has about $ 11 billion in its hands and substantial shares in Yandex.Taxi, Grab and Didi. Dara probably has enough time for miracles in the operational management. And I would believe that they would happen if I had not observed frank tricks and manipulations in reporting.


Many thanks to all for your attention. If you are interested in such considerations that do not fit into the format of a full-fledged article, then subscribe to my Groks channel .

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