Uber Earnings: Top Line Growth and Margin Expansion as Network Effect Builds

Uber Stock at a Glance

• Fair Value Estimate: $68
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

Uber Earnings Update

We are maintaining our $68 fair value estimate for narrow-moat Uber Technologies UBER. 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.

Uber Stock Remains Attractive

Uber yet again generated free cash flow during the first quarter, and it is considering returning cash to shareholders, demonstrating confidence that it will expand margins. In our view, Uber shares remain attractive.

Total gross bookings increased 19% year over year to $31.4 billion, with 40% growth in mobility and 8% growth in delivery. On a constant-currency basis, gross bookings in those segments increased 43% and 12%. Demand remained high, with an increase in user count (13%) and total requests (24%), which drove usage frequency to 5.45 uses per month per user during the quarter from 4.97 last year. In mobility, as we expected, the flywheel is bringing in more drivers, which hit an all-time high, while driver incentives continued to decline (down 42% in the U.S. and Canada). Overall user monetization based on revenue increased 31% from last year.

Mobility and delivery revenue increased 72% and 23%, respectively, while freight revenue declined 23% mainly due to economic uncertainties. The mobility and delivery segments generated positive adjusted EBITDA of $1.1 billion and $288 million, representing 7.1% and 1.9% margins (as a percentage of gross bookings), respectively, up from last year’s 5.8% and 0.2%.