Company Reports

We are maintaining our $80 fair value estimate for narrow-moat Uber after the firm kicked off fiscal 2024 with strong financial results. As in previous quarters, we view Uber as a firm on top of its game, executing strongly on its business model while posting year-over-year growth in bookings, audience, frequency, and profitability. Beyond quarterly results, we believe that the network effect moat source, a leaner operation, and continuing gross bookings and revenue growth are likely to create further operating leverage and drive impressive 20%-40% average annual adjusted EBITDA growth the next three years. With shares selling off after the earnings report, likely due to the financial results not meeting near-term investor expectations, we view the stock as undervalued relative to our unchanged fair value estimate.

Uber has become the largest on-demand ride-sharing provider in the world (outside of China). It has matched riders with drivers completing trips over billions of miles and, at the end of 2023, had 150 million customers using its ride-sharing or food delivery services at least once a month. In light of Uber's network effect between riders and drivers, as well as its accumulation of valuable user data, we believe the firm warrants a narrow moat rating.

Uber has become the largest on-demand ride-sharing provider in the world (outside of China). It has matched riders with drivers completing trips over billions of miles and, at the end of 2023, had 150 million customers using its ride-sharing or food delivery services at least once a month. In light of Uber's network effect between riders and drivers, as well as its accumulation of valuable user data, we believe the firm warrants a narrow moat rating.

We are increasing our Uber fair value estimate to $80 from $74 as the firm provided better-than-expected margin expansion guidance during its analyst day. Uber's expectations regarding the top-line growth and its drivers were in line with our projections. On the margin front, while we had already assumed lower user acquisition costs going forward due to the strong network effect, it was still above Uber's guidance. Plus, the firm expects implementation of artificial intelligence to reduce its customer support costs as a percentage of gross bookings. Overall, the network effect moat source, a leaner operation, and continuing gross bookings and revenue growth are likely to create further operating leverage and drive impressive 30%-40% average annual adjusted EBITDA growth the next three years, with more than a 90% free-cash-flow conversion. The Uber board also announced a $7 billion share buyback authorization.

We are increasing our Uber fair value estimate to $74 from $68. The firm continues to execute on all fronts, further strengthening its network effect moat source as displayed by fourth-quarter results that included growth in users, requests, frequency, user monetization, and suppliers.

Uber has become the largest on-demand ride-sharing provider in the world (outside of China). It has matched riders with drivers completing trips over billions of miles and, at the end of 2023, had 150 million customers using its ride-sharing or food delivery services at least once a month. In light of Uber's network effect between riders and drivers, as well as its accumulation of valuable user data, we believe the firm warrants a narrow moat rating.

Demand for Uber’s mobility and delivery remained high as indicated by third-quarter results, which showed GAAP profitability for the second consecutive quarter. While the numbers continue to display the firm’s network effect moat source, we were more impressed with Uber’s ability to gain traction in more markets and increase adoption of more non-UberX products like Uber for Business, taxi platform, and shared rides, further driving growth. We are maintaining our $68 fair value estimate and still view the shares of narrow-moat Uber as attractive.

We are maintaining our $68 fair value estimate on Uber and continue to view its shares as attractive even after doubling year-to-date. The platform's network effect continued to strengthen with an increase in users, trips, revenue generated per user, and per trip. On the bottom line, Uber reported its first-ever GAAP operating profit as top-line growth and lower user acquisition costs created operating leverage. We expect margin expansion to continue, driven by a return to growth in the freight segment, continuing growth in high-margin advertising, growth in Uber One, and further streamlining of mobility and delivery.

We are maintaining our $68 fair value estimate for narrow-moat Uber and continue to view the stock as attractive. Uber's network effect moat source, which we had assumed was present long before the firm's IPO, continues to drive restaurants of all sizes to the platform—the supplyside of the platform is strengthening. The latest one is Domino's which had long been against working with third-party order and delivery aggregators like Uber. Domino's announced a global agreement with Uber which allows Uber Eats users to order Domino's directly on the platform. However, Domino's will continue to make the deliveries. Domino's change of strategy displays Uber Eats' network effect, which as it has brought more smaller pizza shops and other restaurants onboard, has attracted more consumers, thus attracting more restaurants. We think Domino's have realized that exposure to Uber's strong network effect and its more than 130 million monthly users (including mobility and delivery users) is beneficial in the long run.

We are maintaining our $68 fair value estimate for narrow-moat Uber Technologies. The network effect economic moat source is coming to fruition as demand on the firm's platform increases and consumer and driver acquisition costs decline; together, this is driving top-line growth and margin expansion. The moat is also creating more pressure on the few competitors that remain, including Lyft in the United States. While we think Lyft has also benefited from higher demand, higher driver incentives likely pressured its margins. DoorDash remains the clear delivery market leader, but it may need to diversify its business to bring in more couriers, which is why we still think that an acquisition of Lyft by DoorDash would be the right strategy.

We maintain our $68, $34, and $159 fair value estimates of Uber, Lyft, and DoorDash, respectively, after the California appeals court ruled in their favor by upholding Proposition 22, meaning drivers and couriers will remain classified as contractors under the state's law.

The collapse of Silicon Valley Bank has created doubt about access to capital for tech firms, but we do not expect any material impact on online media or advertising firms under our coverage and we are not adjusting our fair value estimates on these stocks. The chance of Silicon Valley Bank becoming a contagion did decline a bit as of March 12. While a second bank, Signature Bank, was closed, regulators announced that all deposits at both banks will be accessible beginning on March 13.

Further strengthening its network effect-based moat, Uber again reported an impressive quarter with year-over-year growth in users, order frequency, and monetization. Top-line growth generated additional operating leverage and margin expansion. We were impressed with management’s confidence in having a profitable quarter, on a GAAP basis, this year which supports our assumption that the firm will hit full-year GAAP profitability in 2024. While Uber’s first-quarter outlook indicates continuing strong growth through 2023, we have lowered our gross bookings and revenue projections modestly as an economic downturn will likely weaken demand.

Uber has become the largest on-demand ride-sharing provider in the world (outside of China). It has matched riders with drivers completing trips over billions of miles and, at the end of 2022, had 131 million customers using its ride-sharing or food delivery services at least once a month. In light of Uber's network effect between riders and drivers, as well as its accumulation of valuable user data, we believe the firm warrants a narrow moat rating.

We were pleased with Uber’s impressive third-quarter results as the firm saw strong demand and generated positive adjusted EBITDA and free cash flow. Uber continues to progress toward GAAP profitability, which we still project will be in 2024. Improvements on the demand and supply sides of the platform indicated further strengthening of Uber’s network effect moat source. Surprisingly, with significant macro uncertainties in the U.S. and globally, management still sees higher demand in the fourth quarter. We are maintaining our $73 fair value estimate. While the stock is up 13%, we still view the shares of this narrow-moat firm as attractive.

The classification of drivers and couriers as contractors was at the forefront again as the Department of Labor, or DOL, proposed rescinding rules created during the Trump presidency and returning primarily to what was in effect before. While the change may increase legal challenges against Uber, Lyft, and DoorDash, we don’t believe the chances of drivers being classified as employees have changed significantly. First, before the employee classification changes under Trump, those firms continued to successfully classify drivers as contractors. Second, over time, the firms have compromised with several states and increased benefits provided to their contractors, which we think sets precedents and strengthens their current standing if challenged. In addition, we expect the DOL’s latest proposal will muddy worker classification, creating difficulties for courts and lengthening the overall legal process.

We have three main takeaways from Uber’s second-quarter results. First, the supply side of the platform continues to improve, not because of higher incentives but mainly because of higher demand and an increase in driver or vehicle utilization across many markets in the United States. Second, we think the network effect is driving further adoption of Uber’s subscription offering, Uber One, which now has 10 million members and whose growth is likely to expand margins. Third, to our surprise, management is not seeing much impact from inflation—contrary to what most businesses have been experiencing—nor the threat of an economic recession.

With the market disappointed with guidance from peer Lyft, Uber's shares have been dragged lower despite the firm’s solid first-quarter results and second-quarter guidance. Also, Uber now expects to generate free cash flow for the full year. In our view, the strengthening of Uber’s mobility segment, the availability of drivers, continuing growth in delivery, and an overall increase in usage of Uber’s platforms by consumers support the firm’s network effect moat source, which continues to drive expanding margins. We have not made significant changes to our model and are maintaining our $73 fair value estimate. We view narrow-moat Uber as an attractive investment.

One day after posting strong fourth-quarter results, Uber held its first investor day conference on Feb. 10, during which the firm focused on growth opportunities within each of its segments and its continuing progress toward margin expansion and GAAP profitability. The firm also provided a long-term outlook, most of which was comparable with our projections. We did not make significant changes to our model and maintained Uber’s $73 fair value estimate. We view this narrow-moat and 4-star-rated name as attractive for new investors.

Uber posted strong fourth-quarter 2021 results with the top and bottom line exceeding the FactSet consensus estimates. Demand for delivery remained strong and the segment generated positive adjusted EBITDA for the first time, which the firm expects to continue. Mobility demand continued to approach pre-pandemic levels, which further attracted drivers and stabilized prices for riders, expanding the adjusted EBITDA margin, displaying the platform’s strong network effect moat source. We were also pleased with the firm’s ability to further monetize the platform via advertising and other verticals.