Raising Our Fair Value Estimate for Uber
Significant rides segment hits more than offset by growth in the firm's eats business.
While Uber’s (UBER) rides segment was hit significantly by the current pandemic as demand fell beginning in March, it was more than offset by growth in the firm’s eats business which resulted in better than expected first quarter numbers. Lockdowns and quarantines have spurred demand for food delivery which we think will further strengthen Uber’s network effect moat source during a recovery. We have upped our bookings and adjusted net revenue projections for the eats segment, which pushes our fair value estimate to $48 per share, from $45. While the narrow-moat stock has outperformed the Morningstar U.S. Market index year-to-date and is up 7% in after-hours, we think there is still significant upside. However, we don’t expect the stock will move toward our fair value estimate until there’s an indication of a sustained turnaround in the economy.
Uber reported total adjusted net revenue of $3.3 billion, up 18% from last year, driven by strong growth in its eats gross bookings (up 52% from last year) and a 170 basis point improvement in overall take rate to 20.5%. According to management, the strong start to the firm’s ride segment in January and February was wiped away and bookings were still down 80% in April. However, while performance varies in different markets, overall, it appears that rides bookings have begun to stabilize and some markets such as New York City, San Francisco, Los Angeles, and Chicago are seeing slight sequential growth. Management also stated that the openings of businesses in Georgia and Texas have very quickly pushed ride bookings up substantially from the lows. In addition, bookings in Hong Kong are now at around 70% of the pre-coronavirus levels, according to the firm. However, given the significant uncertainty surrounding COVID-19, its duration and possibly a new wave of cases popping up, we don’t anticipate overall ride bookings to reach the 2019 level until 2022.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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