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Uber Shares Drop 8% as Legal Costs Undercut Profit and Holiday Outlook Disappoints

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Uber’s shares fell 8% on Tuesday after the company reported weaker-than-expected operating profit and issued a cautious outlook for the upcoming holiday quarter. The setback overshadowed otherwise strong growth in both its rides and delivery businesses, which continue to benefit from rising demand and its Uber One membership program.

The ride-hailing giant posted an operating income of $1.11 billion for the third quarter, below analyst expectations of $1.61 billion, according to Visible Alpha. Uber attributed the shortfall to legal and regulatory expenses but did not disclose details. Its guidance for adjusted profit in the fourth quarter — between $2.41 billion and $2.51 billion — also fell short of Wall Street’s projections.

Despite the profit miss, revenue rose 20% year-over-year to $13.47 billion, surpassing analyst estimates of $13.28 billion. Gross bookings climbed to $49.74 billion, beating expectations, driven by a 29% jump in delivery sales and a 20% rise in mobility revenue.

CEO Dara Khosrowshahi said the Uber One program continues to boost customer engagement, noting that users who use both rides and delivery services spend three times more than single-service customers. However, only about 20% of users currently utilize both, leaving significant room for growth.

The earnings disappointment comes despite Uber’s strong year-to-date performance, with its stock up more than 60% before Tuesday’s drop. Investors, however, remain focused on whether the company can sustain profitability while managing mounting legal challenges and regulatory scrutiny.

Uber Bets on Loyalty Program to Drive Growth, Unveils $20 Billion Buyback Plan

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Uber (UBER.N) announced a $20 billion stock buyback program and raised its third-quarter gross bookings forecast above Wall Street expectations on Wednesday, fueled by strong adoption of its paid loyalty program, Uber One.

The $9.99-per-month Uber One membership surged 60% year-on-year in June to over 36 million members, who now account for more than one-third of Uber’s bookings. These loyal users are especially valuable as they engage with both ride-hailing and delivery services, generating over three times the profit compared to single-service users.

To boost Uber One sign-ups, the company hosted a week-long promotional event in May offering discounts across rides, food delivery, and groceries, adding half a million new members during that period. Uber’s stock has soared 48% so far this year, though it dipped about 1% in early trading following the announcement.

Uber expects third-quarter gross bookings—the total dollar value of transactions—to range between $48.25 billion and $49.75 billion, beating analyst estimates of $47.3 billion. This follows an 18.2% year-on-year increase in second-quarter gross bookings, driven by 24.6% growth in delivery and 18.8% in mobility services.

The company also reported a rise in net income to 63 cents per share in Q2 from 47 cents a year earlier, matching expectations. Adjusted core profit for the current quarter is forecast between $2.19 billion and $2.29 billion, above analyst consensus.

Uber is leveraging subscription products like the $2.99 monthly “Price Lock Pass,” which offers fixed pricing on select routes, to encourage habitual weekday commuting, now available in over 10 U.S. and Brazilian cities.

Looking ahead, Uber is expanding in autonomous vehicle technology through over 20 partnerships, including recent deals with EV maker Lucid and startup Nuro, despite not owning its own robotaxi technology.

This latest buyback authorization supplements a previously approved $7 billion program from early 2024.

FTC Files Lawsuit Against Uber Over Alleged ‘Deceptive’ Subscription Enrollments

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Uber Technologies is facing a lawsuit filed by the U.S. Federal Trade Commission (FTC), accusing the company of engaging in “deceptive billing and cancellation practices” with its Uber One subscription service. According to the FTC, Uber misled consumers into signing up for its premium service without their consent and made it unreasonably difficult for them to cancel. The commission claims that users were subjected to a complex and burdensome process when attempting to cancel, requiring them to navigate as many as 23 screens and complete up to 32 actions to end their subscriptions.

In its complaint, filed on Monday, the FTC alleges that Uber charged consumers for Uber One without their explicit approval, and that the company misrepresented the savings and benefits associated with the program. The regulatory body’s investigation into these practices has intensified concerns over the clarity and transparency of subscription-based services, with Uber now facing scrutiny over its business model. This legal battle comes on the heels of a broader push by the FTC to crack down on subscription traps that make it difficult for consumers to cancel services they no longer want.

Following the announcement of the lawsuit, Uber’s stock saw a significant decline, dropping as much as 5.3 percent in New York, signaling investor concern over the potential consequences of the legal action. As of 2:15 p.m. on the same day, Uber’s shares were down 4.5 percent to $71.84. In response to the FTC’s claims, Uber has denied the allegations, asserting that it does not sign up or charge users without their consent. The company maintains that the cancellation process for Uber One now takes most users only 20 seconds or less, calling the FTC’s actions misguided.

The lawsuit is part of the FTC’s ongoing effort to protect consumers from deceptive business practices, particularly in the subscription sector. Recently, the agency has filed similar cases against major companies, including Amazon and Adobe, for allegedly making it overly complicated for consumers to cancel unwanted subscriptions. As the case moves forward, Uber remains confident that the court will find its sign-up and cancellation processes to be clear, simple, and in compliance with the law.