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Dara Khosrowshahi took on the top job as CEO at Uber (UBER) in 2017 when the company was going through a crisis of confidence and pressure from investors led to the resignation of its CEO and founder Travis Kalanick. Mr. Khosrowshahi who had spent the prior 12 years building Expedia (EXPE) into a travel juggernaut took Uber public in May 2019 at $45 per share.
In our article, Insider Weekends: Dara Khosrowshahi’s $9 Million Purchase Of Uber published in 2021 we mentioned:
The company has continued to lose money but it was able to offset some of the impact of the COVID-19 pandemic through other lines of business like Uber Eats, delivery of packages, and the ability to rent cars. Uber has been on my mind recently after I heard from several friends that Uber rides are costing more these days but people are still using them because they have grown used to the convenience and reliability of Uber. It looks like under Dara, Uber might finally use its scale and network effects to build a diverse line of counter-cyclical businesses that would one day lead to profitability.
It may take some more time before Uber finally becomes cash flow positive but the company appears to be headed in the right direction.
During the technology downturn of 2022, Mr. Khosrowshahi received the message loud and clear from investors that they were now focused on bottom line profitability and growth at all costs was no longer the focus. He committed to making Uber profitable and worked with CFO Nelson Chai to fulfill this promise. Mr. Khosrowshahi started the Q2 2023 earnings call stating:
For most of our history, profitable wasn’t the first thing that came up when you asked someone about Uber. In fact, many observers over the years boldly claimed that we would never make any money. And I understood why they felt that way; the easy availability of capital over the past decade obscured the poor unit economics of many businesses. But we knew they were wrong about Uber as did many of our investors who backed us over the years.
We reached two important milestones this quarter, which demonstrates the significant transformation we’ve undergone towards profitable growth: our first-ever GAAP operating profit of $326 million, and our first quarter of free cash flow over $1 billion, all the while delivering record platform engagement, strong top-line growth and a new all-time high of $15.1 billion in total earnings for drivers and couriers on the platform.
Uber operated without a Chief Financial Officer for over three years until the appointment of Nelson Chai in 2018. Mr. Chai played a crucial role in guiding the company through its initial public offering a year later, fixing its balance sheet, and managing multiple significant multibillion-dollar transactions, such as the acquisition of Postmates for $2.65 billion in 2020. He decided to resign from his position as CFO less than three months ago. Uber has now named a semiconductor executive as its new Chief Financial Officer to fortify its position in the market amidst intensifying competition in the ride-hailing industry.
Welcome to edition 61 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.
Sudden Departures
Uber Technologies, Inc. (UBER): $44.94
Market Cap: $91.84B
EV: $94.79B
Key Insights
Management Change
On September 27, 2023, Uber Technologies (UBER) announced that Prashanth Mahendra-Rajah is set to assume the role of Chief Financial Officer starting November 13, 2023, replacing Nelson Chai, who disclosed his intention to step down from the position in August after about five years with the company.
Mr. Mahendra-Rajah has been serving as the Chief Financial Officer at Analog Devices (ADI) for the last six years. While at Analog Devices, Mahendra-Rajah supervised the acquisition of rival Maxim Integrated Products, a deal valued at approximately $21 billion. Prior to joining ADI, he was Chief Financial Officer of WABCO Holdings Inc., a global supplier of commercial vehicle technologies.
Outgoing CFO Nelson Chai will remain as an adviser to the company until January to facilitate a smooth transition.
Challenging Environment for Uber
Decelerating revenue: Uber is suffering from sluggish revenue growth, experiencing a smaller-than-anticipated 14% increase in second-quarter revenue, in contrast to the nearly 29% surge observed in the first quarter. This is the slowest growth rate since the first quarter of 2021.
AVs: The surge in autonomous vehicles (AVs), fueled by the electric vehicle boom led by companies like Tesla (TSLA) in the past decade, presents both an opportunity and a challenge to Uber.
Fares: Despite Uber achieving its first-ever quarterly operating profit and witnessing an increase in its cash flow, Lyft (LYFT), its lesser rival, has increased competition in the ride-sharing sector by reducing ride fares.
Minimum wage: Last week, New York state judge rejected a bid by Uber, DoorDash (DASH), and Grubhub to block New York City’s law setting a minimum wage for app-based delivery workers a flat hourly rate of $17.96 or pay 50 cents a minute per delivery. The new minimum pay law, aimed at forcing tech companies to better compensate gig workers, mandates platforms to pay the workers about $18 per hour at first, starting in October, and to increase to $20 per hour by 2025. According to the NY Times, Delivery workers currently make about $11 an hour on average.
Spinoff: The possible spinoff of Uber Freight. The division has seen increasing losses, which has negatively impacted overall business performance.
Recent Developments
Uber has forged a partnership with Los Angeles Yellow Cab and its affiliated companies to enhance the availability of taxis. Through this new collaboration, the Uber app will facilitate bookings for taxis associated with LA Yellow Cab and its five partner fleets.
Uber Freight – In May 2023, Waymo, Alphabet’s self-driving unit, and Uber announced a multi-year strategic partnership. Later this year, Uber Technologies will introduce driverless cars to its ride-hailing and food delivery platform through a partnership Waymo, enabling Uber customers to access a designated fleet of Waymo’s autonomous vehicles for rides and deliveries within a 180 square mile area in Phoenix, Arizona.
Bloomberg reports, that Uber is developing a service akin to TaskRabbit, enabling app users to hire individuals for a range of tasks, expanding beyond the realm of driving and deliveries.
Uber unveiled on Wednesday that it is introducing a service for return package shipping through mail carriers, accessible through its Uber and Uber Eats apps. Uber’s new service allows users to track their packages in real-time through the app, with couriers providing a visual confirmation or photo of the receipt upon drop-off.
Advertising: Uber reports that the advertising revenue run rate has surpassed $650 million, demonstrating substantial progress toward its target of $1 billion by 2024. On October 2, 2023, the company’s advertising division extended its In-Car Tablet Advertising to key U.S. markets, including Las Vegas, Miami, Philadelphia, and Washington D.C., with plans for further expansion throughout the year.
Uber is also exploring ventures into travel products, aiming to transform into a super app. Leveraging the wealth of data collected on consumer whereabouts, preferences, and stored payment information, Uber envisions becoming an “everyday use case” for users.
“Our ambition is to be that go-to app,” Mr. Khosrowshahi explained: “Over a period of time, what we’re seeing is that consumers are getting more and more locked into the ecosystem where we know you, we’ve got your payments detailed, we know where you are, we know where you go, etc.”
Valuation
The stock for the first time trades a little above the IPO price and has seen a 54% increase in its stock price since last year. The company has a market capitalization of $90.96 billion, an enterprise value of $94.79 billion, and net debt of $3.87 billion.
The company has been suffering from a slower pace of revenue growth and net income of $394 million. The forward EV/EBITDA ratio is 24.80 and the forward P/E at 27.25.
S&P Global Ratings upgraded the company’s credit rating, citing eight consecutive quarters of improving earnings before interest, tax, depreciation, and amortization. The rating agency indicated the possibility of further upgrades by multiple notches if the company maintains healthy leverage and cash-to-debt levels beyond 2024.
Second Quarter 2023 (Press Release) (Investor Presentation)
Uber experienced record numbers of riders and robust demand for food delivery, but overall revenue was dampened by losses incurred in the freight unit.
“We are now entering a phase where we are increasingly thinking about returning the capital to shareholders, either through dividends or buybacks, more likely with buybacks,” CEO Khosrowshahi said at the Goldman Sachs Communacopia + Technology conference. Mr. Khosrowshahi informed investors to expect these buybacks within the next couple of years.
At the close of the second quarter, Uber held $5.5 billion in cash and $5.1 billion in equity investments. Long-term debt was $9.3 billion.
Outlook for Q3 2023
Conclusion
It looks like Uber is just getting started in terms of the cash it can generate from its business and we are likely to see a significant increase in free cash flow next year. The current price is well above where I wrote a bullish article for Seeking Alpha in May 2022 when the stock was trading a little above $25.
While I like Uber’s prospects going forward, the company is priced for perfection at current levels and I would like to see a pull back to the $35 level before I get interested in going long the company.
Appointments
1. Cognizant Technology Solutions (CTSH): $67.54
On September 28, 2023, Cognizant Technology Solutions Corporation announced the appointment of Jatin Dalal as Chief Financial Officer effective in December 2023.
| MarketCap: $34.11B | Avg. Daily Volume (30 days): 3,326,437 | Revenue (TTM): $19.39B |
| Net Income Margin (TTM): 11.31% | ROE (TTM): 17.65% | Net Cash: $614M |
| P/E: 15.77 | Forward P/E: 14.35 | EV/EBIDTA (TTM): 9.67 |
| P/S (TTM): 1.78 | P/B (TTM): 2.64 | 52 Week Range: $50.43 – $72.40 |
2. JFrog Ltd (FROG): $24.76
On September 28, 2023, JFrog announced the appointment of Ed Grabscheid as the Chief Financial Officer of the Company, to be effective January 1, 2024.
| MarketCap: $2.57B | Avg. Daily Volume (30 days): 830,333 | Revenue (TTM): $312.53M |
| Net Income Margin (TTM): -26.55% | ROE (TTM): -13.16% | Net Cash: $443.28M |
| P/E: -29.92 | Forward P/E: 64.52 | EV/EBIDTA (TTM): -33.45 |
| P/S (TTM): 7.94 | P/B (TTM): 4.01 | 52 Week Range: $17.11 – $30.94 |
3. Gamestop Corporation (GME): $14.87
On September 27, 2023, the Board of Directors of GameStop Corp. with Ryan Cohen abstaining, appointed Mr. Cohen, as the President, Chief Executive Officer, and Chairman effective immediately.
| MarketCap: $4.53B | Avg. Daily Volume (30 days): 3,906,210 | Revenue (TTM): $5.81B |
| Net Income Margin (TTM): -1.72% | ROE (TTM): -7.65% | Net Cash: $559.50M |
| P/E: N/A | Forward P/E: N/A | EV/EBIDTA (TTM): N/A |
| P/S (TTM): 0.76 | P/B (TTM): 3.52 | 52 Week Range: $14.57 – $34.99 |
4. Uber Technologies (UBER): $44.94
On September 27, 2023, Uber Technologies announced the appointment of Prashanth Mahendra-Rajah as the Chief Financial Officer of the company, effective on November 13, 2023.
| MarketCap: $91.84B | Avg. Daily Volume (30 days): 16,283,285 | Revenue (TTM): $35B |
| Net Income Margin (TTM): -1.07% | ROE (TTM): -4.22% | Net Debt: $3.87B |
| P/E: N/A | Forward P/E: 27.25 | EV/EBIDTA (TTM): N/A |
| P/S (TTM): 2.58 | P/B (TTM): 10.50 | 52 Week Range: $22.94 – $49.49 |
5. Pitney Bowes (PBI): $3.46
On September 29, 2023, the Board of Directors of the Company appointed Jason C. Dies, Executive Vice President and Group Executive of the company, to the position of Interim Chief Executive Officer effective October 2, 2023
| MarketCap: $609.05M | Avg. Daily Volume (30 days): 2,094,853 | Revenue (TTM): $3.35B |
| Net Income Margin (TTM): -4.10% | ROE (TTM): N/A | Net Debt: $1.90B |
| P/E: -4.39 | Forward P/E: 22.83 | EV/EBIDTA (TTM): 10.11 |
| P/S (TTM): 0.20 | P/B (TTM): 9.57 | 52 Week Range: $2.37 – $4.65 |
1. Gamestop Corporation (GME): $14.87
On September 27, 2023, the Board of Directors of GameStop Corp. announced Ryan Cohen succeeds Mark H. Robinson as GameStop’s principal executive officer, with Mr. Robinson remaining as the company’s general counsel and secretary effective immediately.
| MarketCap: $4.53B | Avg. Daily Volume (30 days): 3,906,210 | Revenue (TTM): $5.81B |
| Net Income Margin (TTM): -1.72% | ROE (TTM): -7.65% | Net Cash: $559.50M |
| P/E: N/A | Forward P/E: N/A | EV/EBIDTA (TTM): N/A |
| P/S (TTM): 0.76 | P/B (TTM): 3.52 | 52 Week Range: $14.57 – $34.99 |
2. ZoomInfo Technologies (ZI): $16.75
On September 29, 2023, ZoomInfo Technologies announced that Joseph Christopher Hays, the company’s President and Chief Operating Officer, will transition into the role of Executive Vice President, International Expansion effective October 1, 2023.
| MarketCap: $6.72B | Avg. Daily Volume (30 days): 5,794,784 | Revenue (TTM): $1.20B |
| Net Income Margin (TTM): 10.32% | ROE (TTM): 5.53% | Net Debt: $630.30M |
| P/E: 54.48 | Forward P/E: 16.34 | EV/EBIDTA (TTM): 26.43 |
| P/S (TTM): 5.48 | P/B (TTM): 2.79 | 52 Week Range: $15.53 – $48.76 |
3. JFrog Ltd (FROG): $24.76
On September 28, 2023, JFrog announced Jacob Shulman will step back from his role as Chief Financial Officer, effective January 1, 2024.
| MarketCap: $2.57B | Avg. Daily Volume (30 days): 830,333 | Revenue (TTM): $312.53M |
| Net Income Margin (TTM): -26.55% | ROE (TTM): -13.16% | Net Cash: $443.28M |
| P/E: -29.92 | Forward P/E: 64.52 | EV/EBIDTA (TTM): -33.45 |
| P/S (TTM): 7.94 | P/B (TTM): 4.01 | 52 Week Range: $17.11 – $30.94 |
4. Sterling Check (STER): $13.15
On September 28, 2023, Peter Walker notified the company that he would be resigning from his position as Executive Vice President and Chief Financial Officer of Sterling Check Corp. effective November 10, 2023, in order to pursue another opportunity.
| MarketCap: $1.27B | Avg. Daily Volume (30 days): 331,465 | Revenue (TTM): $738.88M |
| Net Income Margin (TTM): 0.34% | ROE (TTM):0.34% | Net Debt: $464.12M |
| P/E: N/A | Forward P/E: N/A | EV/EBIDTA (TTM): 15.66 |
| P/S (TTM): 1.67 | P/B (TTM): 1.68 | 52 Week Range: $10.58 – $20.43 |
5. Sandy Spring Bancorp (SASR): $20.42
On September 26, 2023, Philip J. Mantua, Executive Vice President and Chief Financial Officer of Sandy Spring Bancorp and its wholly owned subsidiary Sandy Spring Bank, informed the company that he intends to retire effective March 31, 2024.
| MarketCap: $916.09M | Avg. Daily Volume (30 days): 227,516 | Revenue (TTM): $458.47M |
| Net Income Margin (TTM): 31.31% | ROE (TTM): 9.52% | Net Debt: $973.46M |
| P/E: 6.39 | Forward P/E: N/A | EV/EBIDTA (TTM): N/A |
| P/S (TTM): 1.95 | P/B (TTM): 0.59 | 52 Week Range: $18.63 – $36.01 |
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