2023-08-02 15:52:47 ET
Summary
- We remain buy-rated on Uber Technologies, Inc. post Q2 2023 earning results. We continue to see an upside ahead for the stock into 2024.
- Consistent with our expectation, we’re seeing mobility and delivery gross bookings increase Y/Y driving revenue growth, despite the miss on revenue estimates this quarter.
- We see revenue growth acceleration driven by increased mobility gross bookings in 2H23 and improved margins as the company shifts focus toward profitable growth.
- The stock is up roughly 66% since our buy-rating in October, outperforming the S&P500 by around 40%.
- We see attractive entry points into the stock; Uber is trading at 2.2x EV/C2024 Sales versus peer group average of 2.8x. We recommend investors buy the stock.
We remain bullish on Uber Technologies, Inc. ( UBER ) post Q2 2023 earning results as our investment thesis of profitable growth driven by mobility gross bookings is playing out. We see further upside ahead for the stock driven by increased audience frequency and pricing into 2024 as the platform expands internationally and leverages machine learning for flexibility and a better consumer experience. Management noted on the earnings call that "we're seeing more recently that with the power of machine learning, we can offer the right product to the consumer at the right time."
This quarter, Uber reported gross booking up 16% Y/Y and 6.5% sequentially to $33.6B versus last quarter, where gross bookings grew 19% Y/Y to $31.4B; management forecasts gross bookings for 3Q23 to be in the $34B to $35B range, which would account for a 14% to 16.8% Y/Y growth. We understand investor concern that Uber's post-pandemic growth has slowed down, but we think Uber is entering a new phase of profitable growth and will continue to see higher user engagement and expanding margins into 2024. Consistent with our expectations in June, Uber reported its first-ever operating profit this quarter, and we expect the company to continue turning a profit in 2H23.
The stock is up 66% since our buy-rating in early October , outperforming the S&P 500 by around 40%. YTD, the stock is up an impressive 85%, outperforming the S&P 500 by approximately 66%; to put this into perspective, YTD, Uber has outperformed Microsoft (MSFT), up 38%, Amazon (AMZN), up 50%, and others in the FAANG group. Uber's rival, Lyft ( LYFT ), is up nearly 8% YTD, in comparison, while DoorDash ( DASH ) is up an impressive 79% during the same period. We continue to see a favorable risk-reward for Uber post-earnings call yesterday and recommend investors explore favorable entry points into the stock at current levels.
The following graph outlines our rating history on Uber.
Post-Pandemic Growth Is Not Slowing
Uber reported revenue of $9.2B, up 14% Y/Y and 4.3% sequentially but missed consensus by $140M; we understand investor concern over the company's slower growth pace, with this quarter's revenue Y/Y growth being among the slowest since 1Q21. In comparison to the last quarter, revenue experienced higher double-digit growth of 27.5% Y/Y but lower QoQ growth of 2.2%, and in 4Q22, the company reported revenue growth of 48.8% Y/Y. We're constructive on Uber's revenue growth trajectory despite the revenue growth percentage slowdown; we continue to expect the company to report Y/Y and sequential revenue growth into 2024; management plans to be profitable every quarter going forward.
The following chart outlines Uber's 2Q23 earning results.
Historically, the main concern for Uber was whether or not the company would be able to achieve profitability, and the company has now outgrown this problem; this quarter Uber achieved its first-ever GAAP operating profit of $326M and a first-ever quarter of free cash flow of over $1B. While the company's first-ever operating profit might be eclipsed by the slower pace of growth, we expect the company to experience strong top-line growth as management balances strong growth with expanding margins.
The following graph outlines Uber's quarterly operating income since 2019.
Taking a closer look, Uber's revenue growth this quarter was driven by higher mobility and delivery gross margins, with more weight on the former. Consistent with our expectations pre-earnings , mobility growth outpaced delivery growth this quarter. The following graph outlines gross bookings for the quarter by segment.
Into 3Q23, we expect mobility to continue to see double-digit gross bookings growth and expect lower double-digit growth for delivery as the macro headwinds continue to pressure consumer discretionary spending. Additionally, while we're constructive on Uber's international expansion, we do think the stock will experience increased revenue growth once macro headwinds in the U.S. ease in 2024; Uber now derives $4,936M of its total $8,073M revenue from the U.S. and Canada. We see the stock outperforming in 2024 and recommend investors buy in.
Valuation
We continue to believe Uber is fairly valued as a growth stock. On a P/E basis, the stock is trading at 51.9x C2024 EPS $0.91 compared to the peer group average of 26.6x. The stock is trading at 2.2x EV/C2024 Sales versus the peer group average of 2.8x. We see further upside for the stock headed further into 2H23.
The following chart outlines Uber's valuation against the peer group average.
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Word on Wall Street
Wall Street is overwhelmingly bullish on the stock. Of the 47 analysts covering the stock, 43 are buy-rated, and the remainder are hold-rated. The stock is currently priced at $48 per share. The median sell-side price target is $52, while the mean is $53, with a potential 9-12% upside.
The following charts outline Uber's sell-side ratings and price targets.
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What to do with the stock
We remain buy-rated on Uber Technologies, Inc. despite the revenue miss on consensus estimates this quarter; we recommend investors take advantage of the 7.5% pullback post-announcing earnings, accounting for the stock's biggest decline since October, to add to their position. We expect Uber to continue outperforming into 1H24 as the company expands its base internationally and incorporates machine learning features to enhance consumer and driver experience. We recommend investors explore favorable entry points into Uber Technologies, Inc. stock at current levels.
For further details see:
Uber: Shift Towards Profitable Growth Playing Out