UBER - Uber's Q3 2022 Earnings: A Fresh Look At The Books

Summary

• Uber continues to show strong momentum in revenue growth.
• The cash flow, cash position, and profitability metrics of the company have also continued to display strength.
• Overall, the platform appears healthy, growing, and increasingly profitable.

Overview

Uber (UBER) is a company that we’re all familiar with. Often ending up in the news for the wrong reasons, it is fair to call Uber a high-profile firm; its name has come up associated with everything from potential labor disputes, aggressive business practices, and the whims of its founder Travis Kalanick.

News cycle aside, many of us know the company since we have used one of its services – Uber Cab, Uber Eats, or perhaps one of its lesser-known offerings such as Drizzly (alcohol delivery).

This large and growing B2C logistics company, still less than 15 years old (founded in 2009), has been a polarizing business and most definitely a polarized stock. A large cross-section of investors, both professional and retail, seem to have an opinion – with these opinions coming in at both ends of the bearish/bullish spectrum.

Given the double digit uptick (12.5% as of this article) from the firm’s Q3 2022 results , I want to take a fresh "look at the books" and determine the fundamental position of the company as it now stands.

Fundamentals

Pricing

Starting from a birds-eye view, we see that Uber has performed roughly in line with the Nasdaq this year, which has drawn down ~11% more than the SP500 year-to-date.

While Uber underperformed the NASDAQ for most of the year, today’s strong uptick, the stock has come into line with the NASDAQ’s price performance year-to-date. This provides us with a sensible benchmark for analyzing further price behavior in this instrument.

Throughout this past year, Uber’s underlying business metrics have been evolving. Let’s take a look at the results for Q3 2022 and see how they line up with historical metrics and expectations.

Gross Bookings & Revenue

Gross Bookings represent Uber’s overall economic impact, with Revenue being the piece that goes to the company. Since Uber is a business delivering services via contractors, the difference between Gross Bookings and Revenue is what goes to compensating these contractors.

Taking a look at the company’s 11/1/2022 8-K (results for Q3 2022), we see continued double digit growth in both bookings and revenue. Gross Bookings are 26% higher for Q3 2022 than they were in 2021, going from $23B to $29B.

This is undergirded by the top-line metric in the picture above: Monthly Active Platform Consumers. Monthly Active Users are the lifeblood of any B2C technology business, and Uber is no exception. It is good to see that this metric continues to increase, which is far from a given in the technology sector today. 14% growth from 109 million quarterly users to 124 million can be considered healthy.

Since Gross Bookings percentage growth exceeds MAPC growth, this implies that each customer/active user is also spending more on the platform than they did previously. Additionally, it seems that Uber is capturing a larger piece of the economic activity than it generates – revenue growth significantly outpaces growth across these other metrics. This is mentioned in the firm’s current filing and will be explained in the next section.

Looking at Uber’s performance by business, we see a picture of growth across its core 3 areas. Uber’s core business, mobility, presents a particularly robust increase of 38% from Q3 2021:

Additionally, we see a large uptick in revenues across the firm’s 3 lines of business. The filing makes clear that some of this is due to one-off adjustments pertaining to its acquisition of Transplace, a digital freight management system akin to Uber Freight. Along with this, the filing states that $1.1B of Mobility revenue was added due to shifts in the firm’s operating model within the United Kingdom. Although we will not look into the details of the company’s UK operations within this article, this metric should provide comfort around Uber’s ability to generate returns in a more regulated labor context such as the United Kingdom.

Since these numbers were impacted materially by one-off accounting adjustments, it’s also worth looking at the firm’s "Take Rate" across each of its lines of business. This represents the portion of Gross Bookings that flow through to revenue for the firm:

Small adjustments aside, these numbers are progressing in the right direction. The Total Take Rate going from 21% in Q3 2021 to over 28% in Q3 2022 is a healthy indicator of the firm’s ability to capture value.

Overall it is fair to see that this represents a healthy revenue picture for the firm. Double digit growth in terms of users, bookings, and revenues is not easy to maintain at Uber’s scale; yet, it appears to be doing so.

Profitability & Cash Flow

Of course, good revenue growth would not mean much without a commensurately strong cash position. Uber’s profitability and cash position warrant a review:

The firm is still posting a net loss. However, its $1.2B quarterly loss was worsened by several factors. The firm’s stock-based compensation expense of $482M was significant, as well as a negative $2.5B revaluation of its equity investments.

It is common for Uber to write down its equity investments, and this has occurred several times throughout its operating history. Unfortunately this appears to have made the difference as to net profit this quarter. Nonetheless, writing down bad investments is essential and creates certain tax efficiencies. This leaves the door open for net profit further down the line; something that would have been achieved this past quarter had it not been for these adjustments. Worth noting is that these are metrics defined in the context of accrual-based accounting; we will look at the cash flow situation next.

On the cash flow side, Uber has provided a quarter of positive free cash flow. While the comparison is made for Q3 2021, the 8-K makes clear that the firm’s free cash flow was impacted by another one-off adjustment pertaining to insurance. What this means is that the YoY decline in free cash flow that we see is not worth reading in to, since the quarter last year was an exception. This quarter, however, is "clean" in the sense that it is cash from operations and not subject to any adjustments. This is a good sign indeed.

Looking in to the cash flow situation further, we can avoid the complex accounting inherent to a technology business and simply look at the firm’s cash position:

(Top/bottom of table clipped together from UBER 8-K 11/1/2022)

The picture here looks steady, with Uber able to improve its cash position both on a year-to-date and quarter-to-quarter basis.

Conclusion

On a bare-bones fundamental basis, Uber has just posted a quarter that creates cause for optimism: double-digit revenue growth, a genuinely cash-flow positive quarter, and a strengthening cash position.

There is a lot more to cover with a company like this, but the essence of the firm here is most definitely robust. Given that the stock is priced in line with the NASDAQ index for this year and is demonstrating strong fundamental momentum going into 2023, I am bullish on the company & the stock.

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