Uber Beats Q3 Top-Line Expectations; Shares Undervalued
We are maintaining our fair value estimate for Uber and continue to view this narrow-moat stock, along with its peer Lyft, as attractive.
We are maintaining our $69 fair value estimate for Uber UBER and continue to view this narrow-moat stock, along with its peer Lyft, as attractive. Uber's third-quarter results displayed its network effect as an increased supply of drivers and lower driver acquisition costs accommodated continuing increase in demand for the firm's mobility service. In addition, cross-selling both the mobility and delivery platforms to consumers and drivers/couriers continued to improve as shown by an increase in Uber Pass users. We were also pleased that with more consumers using Uber, advertisers have begun to purchase ads on the firm's platforms, helping Uber generate high-margin revenue. Both net revenue and adjusted EBITDA (positive for the first time) beat the FactSet consensus estimates. Total gross bookings increased 57% from last year to $23.1 billion, driven by growth in both the mobility (67%) and delivery (50%) segments. Mobility gross bookings hit 79% of 2019 levels (equivalent to a $44 billion annual run rate), an improvement from the second quarter's 71%. According to management, gross bookings in October were at 85% of 2019 levels. Like Lyft, the overall recovery from the pandemic, plus increased travel, contributed to the improvement. While mobility continued to recover, it did not come at a cost to delivery, as that segment's growth continued to be driven by the overall change in consumer behavior in addition to impact of the delta variant in some markets in the quarter.
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