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Uber Reports Strong Q1, Shares Undervalued

The firm’s driver count is now higher than at any point since the pandemic.

With the market disappointed with guidance from peer Lyft LYFT, Uber's UBER shares have been dragged lower despite the firm's solid first-quarter results and second-quarter guidance. Also, Uber now expects to generate free cash flow for the full year. In our view, the strengthening of Uber's mobility segment, the availability of drivers, continuing growth in delivery, and an overall increase in usage of Uber's platforms by consumers support the firm's network effect moat source, which continues to drive expanding margins. We have not made significant changes to our model and are maintaining our $73 fair value estimate. We view narrow-moat Uber as an attractive investment. Uber's network effect remained intact, as indicated by improvements on the supply and demand sides of the platform. On the supply side, the platform's various earnings opportunities keep attracting drivers and couriers, which lessens the need for a significant increase in incentives, except for fuel surcharges given the recent increase in fuel costs. The firm's driver count is now higher than at any point since the pandemic. On the demand side, growth in users (up 17% year over year) and trips (up 18%), which indicate another 1% increase in trips per user, display the return of riders and continuing growth in delivery requests. In addition, with the recovery in mobility and an increase in delivery options, Uber's gross bookings per trip increased 8% from last year.

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