Uber Earnings: The Platform Is More Easily Attracting Demand and Supply; Shares Remain Undervalued

Demand for Uber’s UBER 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.

Uber’s gross bookings increased 21% year over year to $35.3 billion, led by an increase in mobility (31%) and delivery (18%), slightly offset by a decline in freight (down 27%). Total net revenue was up 11% to $9.3 billion, impacted by changes in business models in some markets that lowered take rates but had no impact on the bottom line. Without those changes, mobility and delivery net revenue would have grown impressively at 35% and 19% from last year, respectively. The Uber platform’s flywheel continued to spin, shown by an increase in users (15%), orders (25%), order frequency (9%), and average gross booking per order (8%), accommodated by strong supply, as the number of drivers and couriers hit a record 6.5 million. Freight revenue declined 27% as demand in that market remains low.

Total adjusted EBITDA of $1.1 billion (3.1% margin) was up from last year’s $516 million (1.8% margin), helped by the top-line growth, including the high-margin advertising revenue. This, combined with the firm’s cost control and increased efficiency, drove margin expansion in mobility (up 60 basis points to 7.2%) and delivery (up 130 basis points to 2.6%). Sales and marketing as a percentage of net revenue was down for the third consecutive quarter as the network effect further reduced consumer acquisition costs. Uber also reduced its headcount by 1%, and management said it expects that to increase only slightly or to remain flat in 2024.