EUR 850.00 For Business Accounts Only

Morningstar | Uber Reports Better-than-Expected 1Q Revenue While Losses Increase; Shares Remain Undervalued

Uber reported mixed first-quarter results as revenue beat expectations while operating losses came in higher than consensus. Net revenue growth was driven mainly by impressive continued expansion of Uber Eats. While overall take rate declined to levels below what the firm experienced in 2017 and 2018, the platform’s user count and trips requested grew at rates similar to that of the firm’s bookings. According to management, there are indications of some stability in rideshare pricing as Uber and Lyft are maintaining their market-leading positions in the U.S. We think this may result in less aggressive driver acquisition efforts and higher retention, which could also possibly prevent any further decline in take rates. We remain confident that Uber’s ridesharing business, which has displayed moat sources such as network effects and intangible assets, could position the firm to become profitable in 2024. We did not make significant changes to our 10-year projections and continue to view Uber as a narrow-moat 5-star name with a fair value estimate of $58 per share.

Uber’s total net revenue of $3.1 billion was up 20% year over year and represented a 21% take rate, down nearly 4 percentage points from last year but up nearly 20 basis points sequentially. We expect Uber’s overall take rate to remain in the low 20s as continuing strong growth in bookings and rideshare pricing stability likely will be offset by aggressive Uber Eats diner, restaurant, and driver acquisition costs. Ridesharing take rate fell to 21%, down 3 percentage points from last year. Ridesharing net revenue came in at $2.4 billion, up only 9% year over year mainly because of the dip in take rate. With some stability in pricing and take rate, we foresee an acceleration of ridesharing net revenue growth throughout 2019.

As the firm has established its dominant position in ridesharing, especially in the U.S., we do not expect further pricing pressure. However, we think aggressive pricing to attract diners, restaurants, and drivers on the Uber Eats side may continue in the short term. This was the case during first quarter as the Uber Eats take rate was 17%, down 200 basis points from the prior year. Over time as Uber leverages its large ridesharing driver base, we expect driver acquisition costs to decline and push Uber Eats take rates higher and to be more comparable with those of ridesharing. With Uber Eats bookings of nearly $3.1 billion (up 108% from last year), the 17% take rate brought in $536 million in net revenue, an 89% year-over-year increase. While Uber’s Other Bets segment generates under 5% of total net revenue, it did grow at an impressive 263% rate to $145 million during the quarter.

Monthly active platform consumers, or MAPCs, were up 33% from last year to 93 million, driven mainly by further adoption of the Uber Eats service. In addition, trips (which includes foods ordered through the Uber platform), went up 36% year over year to nearly 1.6 billion million. In our view, strong year-over-year growth in overall MAPCs and trips, when combined with impressively higher Uber Eats net revenue, may be indicative of Uber Eats possibly becoming a moaty business with the network effect as its economic moat source, similar to Uber’s ridesharing.

The firm reported operating loss of over $1 billion for the quarter, higher than last year’s $478 million but slightly lower than previous quarter’s $1.1 billion, mainly due to a decline in gross margin and higher operations and support, and sales and marketing expenses as percentage of net revenue. Services such as Uber Pro, a growing driver rewards program that includes discounts on vehicle maintenance, likely pushed operations and support costs higher. We think in the long run, those services will help strengthen driver retention and will increase vehicle utilization, which likely will result in steadier take rates and higher gross margin. Plus, as the Uber Eats business progresses toward creating the network effect moat source, driver acquisition costs will decline, helping slow growth in sales and marketing expenses. We continue to project that the firm will become profitable in 2024.