Uber’s Delivery Network Effect Continues to Strengthen

While Uber Technologies UBER posted mixed third-quarter results, we continue to be impressed with growth in the firm’s delivery segment and a gradual improvement in the mobility business. We are increasing our fair value estimate to $51 (from $48) as we have assumed stronger delivery revenue growth in 2021 and beyond, driven by long-term changes in consumer behavior toward more online food delivery and pickups. Additionally, we expect the firm to further accelerate partnerships with more restaurants, increasing the supply side of what appears to be a strengthening network effect. We lowered our projections for the firm’s mobility segment a bit as the recent surge in coronavirus cases in Europe and North America has created more uncertainty. While the stock has nearly tripled from March lows, we believe its current 21% upside (based on our fair value estimate) remains attractive.

Uber reported total gross bookings of $14.7 billion, down 10% from last year as the 134% growth in deliveries was more than offset by the 53% decline in mobility. Demand for Uber’s services did jump impressively from the previous quarter as economies in various markets opened in the third quarter. Mobility and delivery gross bookings were up 94% and 23% from the second quarter, respectively. While the decline in gross bookings from last year drove total adjusted net revenue down 20% year over year, revenue increased 47% sequentially. The adjusted take rate inched up by 30 basis points to 19.1% from last quarter but was down more than two percentage points from last year as the lower take-rate delivery segment represented a bigger chunk of total bookings (58% compared with last year’s mere 29%). Higher year-over-year driver incentives due to the short-term shortage of drivers (as Uber’s mobility is improving a bit), also contributed to the adjusted take-rate decline.

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