2023-05-04 16:04:23 ET
Summary
- We continue to be buy-rated on Uber Technologies, Inc. post-earnings results.
- Uber reported revenue up by 29% Y/Y and a net loss of $157M compared to $5,930M last year; we believe Uber is on track to hit profitability targets.
- The stock is up roughly 26% since our buy-rating last October, outperforming the S&P 500 by 13%.
- Uber is not immune to inflationary pressures or competition with Lyft, Inc., but we expect the diversified and global reach of the company will enable it to continue weathering the storm.
- We continue to believe the best is ahead of Uber and recommend investors begin looking for entry points into the stock at current levels.
We maintain our buy-rating on ride-hailing company Uber Technologies, Inc. (UBER) post Q1 2023 earnings results. Uber's mobility and delivery segments hit all-time quarterly highs on adjusted EBITDA margins; we expect this is a clear signal that the company is snowballing its past investments and global expansion into profitability.
Uber not only reported top-line growth, beating analyst expectations, but the company reported a 29% Y/Y increase in revenue this quarter . We expect the revenue growth was backed by the 19% Y/Y growth in gross bookings to $31.4B. Uber plummeted in the pandemic due to worldwide restrictions on mobility and supply-chain disruptions, but we're seeing the stock make a strong comeback. Our bullish sentiment is driven by our belief that Uber is doing well in increasing the frequency of individual consumers using the service; mobility frequency is up 10% this quarter.
Still, inflationary pressures will likely take a toll on the company in the near term, and we expect heated competition with Lyft, Inc. (LYFT). Nevertheless, we believe Uber is well-positioned to hit its profitability targets by 2024 and perhaps even exceed them.
The stock is up 24% over the past year and roughly 26% since our buy-rating in October last year, outperforming the S&P 500 (SP500) by 13%. We see the stock re-rating higher as the global travel industry rebounds post-pandemic and as the company incorporates AI into its service. We recommend investors begin looking for favorable entry points into the stock at current levels, as we expect Uber is making its comeback.
The following graph outlines our rating history on Uber.
Out of the pandemic slump
Uber leads the industry with a 74% share in the U.S. ride-share market, up from 62% in 2020. We expect Uber to remain the face of the industry with its variety of mobility solutions (Uber Eats and ride-hailing businesses); we believe the company's on track to achieve long-awaited profitability targets.
Uber announced its Q1 2023 earlier this week, and the stock closed more than 9% higher after reporting earnings, showing strong investor confidence in Uber's path forward. The company beat top and bottom line expectations, reporting revenue of $8.82B versus an estimated $8.72 and a loss per share of $0.8 versus an estimated $0.9.
The following chart outlines the key financial highlights from 1Q23.
Uber's free cash flow hit another all-time high at $549M; the higher free cash flow does well to settle the dust around investor concern that the company was too focused on aggressive expansion to generate free cash flow. We believe the best days are ahead for Uber as the ride-sharing industry remains in its infancy, estimated to grow at 16.3% between 2021 to 2028.
Is Lyft really a threat?
Competition with Lyft has become more serious since new CEO David Risher put up an iron front that Lyft will not be for sale and will lean into its pricing power to compete more meaningfully with Uber. Some see a "stable duopoly" forming between the two companies in the U.S. market, but we continue to expect Lyft to be in the shadow of its big brother, Uber, due to Uber's international presence and diversified business. Lyft captured 38% of the market in 2020, but since then that number has slipped to around 26%.
Aside from its international reach, we believe Uber is better-positioned to outperform due to its diversified business beyond ride-hailing into food delivery. Risher's rebuttal to why Lyft hasn't expanded into food delivery is, "I don't really want to get in the same car that, you know, just delivered the tuna sandwich…." Lyft doesn't appear to be diversifying its revenue streams in the near term.
To top it off, Uber's also jumping onto the AI wagon, incorporating AI to enhance the consumer experience by estimating "highly accurate" arrival times for pickups and deliveries. AI is expected to improve Uber's developer productivity; CEO Dara Khosrowshahi highlighted the AI aspect of things well in the 1Q23 earnings call . Khosrowshahi also emphasized the number of advertisers using the product, "growing 70% to 345,000 businesses." We expect Uber's advertising formats will also drive revenue going forward. We see Uber hitting profitability targets quicker than Lyft, but we'll continue to monitor the latter to see how the new CEO's turnaround plan pans out.
Risks to our buy-rating
The largest risk facing Uber's path to growth is the worsening macro environment, namely inflationary pressures, that could further hinder consumer spending. We've seen Uber put up a relatively resilient front so far this year, but still, the looming fear is that the consumer will run out of fuel to opt for Uber, or even Lyft, as a default transportation method. The same risk applies to Uber Eats and competitor DoorDash, Inc. (DASH); so far, online ordering seems alive and well. Consumers are ordering less than they once did during the pandemic but still paying higher prices for deliveries. Uber's delivery segment achieved a revenue of $3,039M this quarter, up 23%, with delivery bookings at $15,026M, up 8%. We expect the macro headwinds to be manageable for Uber going forward and believe the stock provides a favorable risk-reward profile.
Valuation
Uber Technologies, Inc. stock is trading below the peer group average on an EV/Sales metric at 1.7 EV/C2024 Sales versus the peer group average of 2.4x. On a P/E basis, the stock is trading above the peer group average at 53.7x C2024 EPS $0.66 compared to the peer group average of 23.35. We believe Uber is fairly valued and recommend investors buy the stock.
The following chart outlines Uber's valuation compared to the peer group.
Word on Wall Street
Wall Street shares our bullish sentiment on the stock. Of the 46 analysts covering the stock, 41 are buy-rated, four are hold-rated, and the remaining are sell-rated. The stock is priced at $35 per share. The median sell-side price target is $45, while the mean is $47, with a potential 28-33% upside.
The following charts outline Uber's sell-side ratings and price targets.
TechStockPros
What to do with UBER stock
We remain bullish on Uber as the company creeps closer toward GAAP profitability. The pandemic slump appears to be over, and Uber is hitting the ground running as the company pushes top-line growth higher. We expect Uber to continue to achieve sequential growth as the travel industry rebounds and as it secures its status as the leader of the ride-sharing industry early on. We also believe the company is uniquely positioned to weather the weaker consumer spending environment; while consumers have less discretionary spending due to the current macro backdrop, Uber is still experiencing growth. We believe Uber presents a favorable risk-reward profile and recommend investors begin looking for entry points into the stock.
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For further details see:
Uber Technologies: Snowballing Into Profitability