Uber: Strong Network Effect Has Brought Domino’s Onboard

Uber Stock at a Glance

• Fair Value Estimate: $68
• Morningstar Rating: 4 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

We are maintaining our $68 fair value estimate for narrow-moat Uber Technologies UBER and continue to view the stock as attractive. Uber’s network effect, which we had assumed was present long before the firm’s IPO, continues to drive restaurants of all sizes to the platform, and the supply side of the platform is strengthening. The latest collaborator is Domino’s Pizza DPZ, which had long been against working with third-party order and delivery aggregators like Uber. The restaurant chain announced a global agreement with Uber which will allow Uber Eats users to order from Domino’s directly on the platform. However, Domino’s will continue to make the deliveries.

This change of strategy displays Uber Eats’ network effect. As it has brought smaller pizza shops and other restaurants onboard, the platform has attracted more consumers, in turn attracting further restaurants. We think Domino’s has realized exposure to Uber’s strong network effect and its more than 130 million monthly users (including mobility and delivery users) is beneficial in the long run.

We have not made any adjustments to our model. We do not expect this agreement to affect Uber’s revenue significantly, as the firm’s average take rate on Domino’s is likely very low. However, without the delivery service, most of that Uber revenue share could drop to the bottom line. We also think Domino’s could begin marketing on Uber Eats, which could also result in high-margin revenue. Our confidence has increased that the firm will become profitable for full-year 2024, which we’ve already modeled in our estimates.

This new agreement will first be piloted in a few markets and then made available across the United States by the end of this year. In addition, Uber and Domino’s service 27 common international markets.