Uber Earnings: Operating Profitability Hits as Supply Side of Network Effect Remains Intact

We are maintaining our $68 fair value estimate on Uber 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.

In our view, stabilization or strengthening of the job market will not threaten the platform’s supply side nor pressure margins much. Most drivers and couriers have been using the platform as a source of additional income and not necessarily a full-time job. At least 90% work less than 40 hours per week, 60% less than 20, and 40% less than 10.

Gross bookings increased to $33.6 billion (16% increase) and resulted in net revenue of $9.2 billion (up 14%). Mobility gross bookings and net revenue grew 25% and 38%, respectively. Delivery gross bookings increased 12%, while net revenue was up 14%. Strong demand and supply on the platforms pushed take rates of the two segments up 270 basis points and 20 basis points, respectively, from last year. An increase in user count (12%) and total requests (22%), drove usage to 5.55 times per month from last year’s 5.11. The supply side (drivers and couriers) increased 33%, and hours worked per driver increased 7% year over year. These improvements pushed user monetization 13% higher than last year.

Freight revenue, which represents 14% of total net revenue, declined 30% as consumer demand for goods continues to trail that of services, according to the firm.