ResearchA closer look: Uber Technologies (UBER)

A closer look: Uber Technologies (UBER)

Sep 21, 2022

Holding Name: Uber Technologies Inc. (UBER)

Strategy: Flagship

Percent weighting of strategy: ~1.8%

TLDR: Uber (UBER) executed on their promise from earlier this year to become profitable and self-fund future growth. Given its market leading positions, large addressable markets (e.g., mobility only accounts for 1% of global miles), and strong operating leverage, we believe the company has a long runway of growth, that has yet to be appreciated by the capital markets.

Business overview: The global ride-sharing application, founded in 2009, has disrupted modern transportation as we know it and at one point grew to become the highest-valued private startup company in the world.

The company functions as a multi sided platform business model and focuses on two main business segments: mobility and delivery. In tandem, the two verticals have been able to drive growth, lower customer acquisition costs and create a product that users adore.

Why we own it:Uber executed on the back of last quarter’s commitment of prioritizing profitability for the company’s operating model. The company has delivered better-than-expected EBITDA as a result of operating leverage, improved driver supply (even with fewer incentives), and a rationalizing competitive environment. The better-than-expected margin improvement reinforces our view of Uber's free-cash-flow inflection, and the relative outperformance vs. peers highlights the solid execution of the management team.

Management stated that the quarter marks a new phase for the company and its ability to self-fund future growth, an encouraging sign for shareholders.

What’s the latest: Mobility continues to shine as gross bookings for their mobility vertical came in higher than expected as driver supply continues to improve (up 76% year-over-year in the second quarter). Uber Reserve currently operates at a $2 billion run rate and is the company’s fastest growing product. This higher margin service is already single-digit percentages of total trips in regions where the product has been launched. Additionally, surge times decreased to 14% of trips while wait times decreased to 4.5 minutes, both improvements for the company. 

Delivery gross bookings came in lower than consensus but more importantly, EBITDA came in well above estimates. EBITDA margin continues to improve due to increased density, tweaks to the courier algo (decreasing cost per transaction), and rationalizing spend across competitors. Lastly, users that shop using their new delivery verticals are stickier and spend with more frequency compared to those that do not, an encouraging sign for delivery unit economics and user growth.

Sign posts moving forward: Our thesis continues to track and we are underwriting high teen IRRs on conservative assumptions that take into account weaker demand due to macro uncertainty. We plan to monitor consumer demand as a changing macro environment may have an impact on user preferences. We will continue to pay very close attention to the company’s ability to generate free cash flow (guiding $4bn in free-cash-flow by 2024) and EBITDA growth ($5bn by 2024). These metrics will be imperative for investor confidence and operational efficiency.

The content contained in this material is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, solicitation of an offer, or investment advice.


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