On Thursday, Uber (NYSE: UBER) released their third-quarter results, which produced several substantial swings in the share price and heated debate among Fintwit's Uber bulls and bears. As usual, I'm attempting to keep the two balanced while revealing the facts behind company earnings reports. And as you know - this is my opinion and not investment advice.
Making An Uber Difference (sorry for the puns)
Since its inception in 2009 by Travis Kalanick and Garrett Camp, Uber has revolutionized the transportation and delivery business. The firm has grown into a worldwide phenomenon that is getting bigger with time. This most recent earnings report revealed that Uber is now available in nearly 10,000 cities across 72 countries, providing millions of people the ability to work when they want.
No longer are people limited to taxis or subways if they want to travel - now they have Uber, which allows them to request luxury cars, low-cost rides, or even helicopters at their fingertips. I can't imagine going back to calling a taxi or waving to cabs as they sail by in Midtown, NYC - can you?
No longer do people have to make a trip to the local grocery store, call the local pizzeria, or take a trip to the liquor store. Now they have Uber Eats, which can be used to order food, local goods, and alcohol (through the acquisition of Drizly) to their home with the click of a button.
And what about freight for shipping large quantities across the country? Just use the app!
Investing in Uber may seem like a no-brainer for some, but others aren't convinced and say it is too expensive or risky - however, neither of those claims are true. If you take a closer look at Uber's fundamentals, you will see precisely why they currently offer a great case as a re-opening investment.
Uber's quarterly report stated that gross bookings reached an all-time high of $23.1 billion, up a whopping 57% year-over-year (YoY). Their revenue rose at an even faster rate of 72% YoY, reaching $4.8B. This shows how successful their current three-prong approach is (Mobility, delivery, and freight), and as reopening occurs, the economics on all business units should only progress.
While the company lost money, its core business still beat expectations. Uber reported a net loss of $2.4B on revenue of $4.8B. The loss was wider than expected due to unforeseen losses on their investment in the Chinese ride-hailing company, DiDi. Still, Uber's revenue increased by 72% compared to Q3 2020, showing stability throughout the economic recovery from COVID-19's impact.
Despite the losses incurred due to non-operation expenditures, the report shows an adjusted EBITDA of $8 million, up $517 million Quarter-over-Quarter and $633 million YoY, to deliver Uber's first Adjusted EBITDA profitable quarter as a public company.
Uber is growing quickly and dominating its competition in its market sector. Uber has hit an incredible number of Monthly Active Platform Consumers ("MAPCs") of 109 million, up 40% from a year ago, and offers time and effort-reducing services that each user can access.
"While we recognize it's just a step, reaching total-company Adjusted EBITDA profitability is an important milestone for Uber," said Nelson Chai, CFO. "Not only did our Mobility business recover to pre-COVID margins this quarter, our core restaurant delivery business was profitable on an Adjusted EBITDA basis for the first time as well, bringing the full Delivery segment close to breakeven."
After five consecutive quarters of declines, Uber's ride-hailing business has seen its second straight quarter of growth owing to the pandemic. Uber's Mobility segment gross bookings increased 67.4% compared to the same period last year, reaching $9.9B. This is more than 20% below third-quarter levels in 2019, but Uber executives noted that mobility margins had returned to pre-pandemic levels - approximately 5.5%. Consumers were traveling in greater numbers in the third quarter, and the number of drivers and couriers had grown by nearly 640,000 since January.
Additionally, Uber executives shared that this past Halloween weekend surpassed 2019 demand from passengers going out for parties and fun but is at roughly 80% of the pre-pandemic level. An interesting re-opening datapoint relates to U.S. airport trips, which are on the higher end of the profitability spectrum in the industry. They've increased in recent weeks but still remain around 33% below pre-pandemic levels.
As seen below, the Bureau of Labor Statistics has just reported that the share of people working from home because of Covid fell to a pandemic low of 11.6% in October.
As Uber’s higher-margin businesses regain drivers and users as more workers head back to the office, we can expect even further profitability.
During the pandemic, Uber's delivery business, which includes restaurant meals and store deliveries, became the company’s stability. Delivery income has been growing at a steady rate in Q3, suggesting that ridership growth hasn't come at the expense of Uber Eats.
The core restaurant delivery business, which accounts for 96% of delivery gross bookings, approached breakeven for the first time on an adjusted EBITDA basis which improved by $149 million QoQ and by $171 million YoY.
And with a massive number of restaurants on the platform combined with fresh partnerships with RiteAid, Bed, Bath, & Beyond, and BuyBuy Baby, they’ve expanded even further to cover the necessities in all areas for families to order from home.
Freight On The Rise
Uber reported that freight delivered strong growth and improved EBITDA margins as well. Revenue grew 40% YoY to $402M as shippers and carriers continue to utilize Uber Freight offerings to navigate a historically tight freight market.
With the supply chain still tightening and bottlenecks and constraints arising from many angles, Uber Freight is entering a market in dire need of its services. A recent report shows a massive shortage of truck drivers throughout the United States, and Uber is offering truck drivers the ability to work on their own time to help solve a global problem. CEO Dara had said “We see a massive opportunity to disrupt the freight brokerage industry with our technology, which now connects more than 1 million carriers to shippers. This year, we've seen a record number of newly authorized carriers entering the market, up three times versus the end of 2020 as more drivers are choosing to become owner operators.”
Uber is much more than a transportation company. From food deliveries to self-driving cars, Uber isn't just thinking about when someone gets in their vehicle, but also what they can do before and after that journey. That's why Uber can cross-sell other products and services via the app platform. For example, in the earnings call, Dara had pointed out that 40% of first trip mobility users in the UK came from the Uber Eats app. Such access to multiple platforms, drive traffic to other services (pun intended) and lead to lower sales and marketing costs which had increased throughout the pandemic.
Uber's complementary offerings are part of the reason why they can cross-sell so quickly. As Uber invests in growing new product lines, they can drive more utilization on their platform and push revenue per user up. CEO Dara Khosrowshahi also noted that 25% of drivers in the US drive both people and food. Despite a pandemic drive lack of drivers in 2020, Uber has spent months of effort driving incentives to new drivers to join the platform. As of Q3, they have seen a significant uptick in their supply: "Our early and decisive investments in driver growth are still paying dividends, with drivers steadily returning to the platform, leading to further improvement in the consumer experience," said Dara Khosrowshahi, CEO. "This is especially important as Mobility reignites. Mobility Gross Bookings are up 18 percent over just the last two months and this Halloween weekend surpassed 2019 levels."
Keeping customers is easy when you have an all-in-one super app for products and services that are a necessity. As posted by my friend @Sean_Khatibi below, Uber delivery memberships are certainly driving growth and meeting value expectations.
Whether it's ordering food, a ride home from the bar, or shipping mass quantities of goods across the country, Uber has rewarded its members with discounts and rewards programs for remaining in the app.
A company is only as strong as its leader. That rings true with Uber and its CEO, Dara Khosrowshahi.
Following the ousting of Travis Kalanick in 2017, many investors were pessimistic about Uber's future - but under Dara's leadership, that has swept away. Uber had more than $6 billion in cash at the start of its term and now has the potential to become a cash cow as reopening accelerates. The company has already proven that it can take a hit and keep going - how many other companies can say that?
Mr. Khosrowshahi's resume speaks for itself, including Expedia, IAC, Hotels.com, etc., but his job at Uber isn't easy. He's faced with the task of reviving Uber's image in the public eye, which many scandals have tarnished. He's committed to a new culture and induced significant growth by implementing systems that properly compensate those who make the business tick: the drivers. His understanding of the current economic landscape and ability to evolve Uber's multi-channel business model has been crucial in the company's success so far.
The stock price initially dropped following the release of their Q3 earnings, but after Dara Khosrowshahi cleared the air during his transparent earnings call on Thursday, it closed approximately 4.3% higher on Friday.
A New Culture & Environment First Approach
Uber is also investing heavily in its brand to ensure drivers are well taken care of, especially after recent allegations raised by The New York Times. The third-party background check company, Hirease, which Uber uses to screen its drivers, has been renamed "Uber Driver Check" and offers a consistent review of driver records. Drivers are now given an in-app tipping option, and Uber is also now reimbursing them for tolls and tips. Investing in drivers builds loyalty and revenue and makes for happier employees who want to help the company grow. Investing in its people is one of Uber's greatest assets, allowing for better customer satisfaction.
As part of the environmentally-friendly initiative, they've recently announced several partnerships. For example, Uber has partnered with Hertz, allowing Uber drivers to rent Teslas at affordable prices. Not only is this an excellent deal for drivers, but it also puts pressure on Uber's competitors to offer better incentives to drive drivers to their platforms. In addition, both riders and drivers now get an opportunity to test out the magnificent, luxurious vehicles that they might not have had access to before this.
Continuing the EV discussion, Uber has recently partnered with WallBox to make at-home charging stations available for drivers at discounted prices. They've also partnered with Toyota to give drivers discounts towards electric vehicles like the Prius Prime (Toyota's plug-in hybrid). Investing "$200 million over two years into an "EV Infrastructure Fund" which will finance charging stations for Uber vehicles" is part of this initiative.
What's the end goal? To have 100% of worldwide trips done in zero-emission vehicles or via micromobility and public transportation by 2040 - a win for humanity, not just Uber shareholders.
Much of this is due to Uber's lack of profitability and a pandemic-driven decline in drivers and riders. While any company's stock price hinges on many things, the most critical factor in a growth company like Uber is that it continues to grow at an increasingly faster rate. One cannot expect 70% revenue growth for ten consecutive years without some time lag in margins. However, the fact that Uber's revenue exceeded expectations is a positive sign, and as re-opening occurs, there is a clear path to profitability.
The company still has some ways to go before reaching a positive bottom line, especially given its recurring capital outlay needs for things like research and development ($493M) and sales & marketing ($1.17B) to incentivize drivers to return.
The company spent more than $250 million to lure drivers back after the pandemic.
Looking Forward to Q4
Uber is one of the few tech companies that can have a positive outlook after beating expectations by losing more money. This shows how different Uber's business model is from other tech companies evaluated on Wall Street over the past couple of decades.
From the earnings report released on Thursday, the outlook for Q4 2021 includes
Uber needs to be profitable and expects to do so in the next quarter or two from its core business operations.
I believe in the technology they are developing and the impact they are making - simplifying the lives of many. I’m very much looking forward to the future of Uber and its transformative effects on the economy and the daily lives of millions.
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