Ride sharing and on demand delivery service Uber (NYSE: UBER) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 14.8% year on year to $10.13 billion. It made a GAAP loss of $0.32 per share, down from its loss of $0.08 per share in the same quarter last year.
Uber (UBER) Q1 CY2024 Highlights:
- Revenue: $10.13 billion vs analyst estimates of $10.09 billion (small beat)
- Bookings: $37.7 billion at the midpoint vs analyst estimates of $38.0 billion (0.8% miss)
- EPS: -$0.32 vs analyst estimates of $0.22 (-$0.54 miss)
- Q2 2024 bookings guidance: $39.5 billion at the midpoint vs analyst estimates of $40.1 billion (1.5% miss)
- Gross Margin (GAAP): 39.1%, up from 33.1% in the same quarter last year
- Free Cash Flow of $1.36 billion, up 77% from the previous quarter
- Monthly Active Platform Consumers: 149 million, up 19 million year on year
- Market Capitalization: $146.6 billion
Born out of a winter night thought: "What if you could request a ride from your phone?" Uber (NYSE: UBER) operates a global network of on demand services, most prominently ride hailing and food delivery, and freight.
Uber pioneered the online ride hailing model, allowing users to summon taxi’s via their mobile devices, an innovation that disrupted modern transportation. The company next expanded into food delivery with UberEats, and has grown a trucking brokerage business, Uber Freight. It is the largest global ride sharing network, with majority market share in the most countries it operates in.
The company’s value propositions are multiple. For individuals, Uber effectively lowered the cost per mile for taxi transportation vs. legacy cabs, while providing ease of use and convenience. For drivers, it has provided flexible earning opportunities. While for restaurants and merchants, Uber’s platform has allowed them to expand their consumer reach, and provided an online presence.
Gig Economy
The iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.
Uber competes with rival Lyft (NASDAQ: LYFT) in ride hailing and DoorDash (NYSE:DASH), Just Eat Takeaway (ENXTAM:TKWY), Delivery Hero (XTRA: DHER), and Deliveroo (LSE:ROO).
Sales Growth
Uber's revenue growth over the last three years has been exceptional, averaging 59% annually. This quarter, Uber reported mediocre 14.8% year-on-year revenue growth, in line with analysts' expectations.
Ahead of the earnings results, analysts were projecting sales to grow 17.1% over the next 12 months.
Usage Growth
As a gig economy marketplace, Uber generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.
Over the last two years, Uber's users, a key performance metric for the company, grew 14.3% annually to 149 million. This is solid growth for a consumer internet company.
In Q1, Uber added 19 million users, translating into 14.6% year-on-year growth.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Uber because it measures how much the company earns in transaction fees from each user. This number also informs us about Uber's take rate, which represents its pricing leverage over the ecosystem, or "cut" from each transaction.
Uber's ARPU growth has been exceptional over the last two years, averaging 21.2%. The company's ability to increase prices while growing its users demonstrates its platform's value, as its users are spending significantly more than last year. This quarter, ARPU grew 0.2% year on year to $67.99 per user.
Pricing Power
A company's gross profit margin has a major impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors may ultimately determine the winner in a competitive market, making it a critical metric to track for the long-term investor.
Uber's gross profit margin, which tells us how much money the company gets to keep after covering the base cost of its products and services, came in at 39.1% this quarter, up 6 percentage points year on year.
For gig economy businesses like Uber, these aforementioned costs typically include server hosting, customer support, and payment processing fees. Another cost of revenue could also be insurance to protect against liabilities arising from providing transportation, housing, or freelance work services. After paying for these expenses, Uber had $0.39 for every $1 in revenue to invest in marketing, talent, and the development of new products and services.
Uber's gross margins have been trending up over the last 12 months, averaging 34.1%. This is a welcome development, as Uber's margins are below the industry average, and rising margins could suggest improved demand and pricing power.
User Acquisition Efficiency
Consumer internet businesses like Uber grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).
Uber is quite efficient at acquiring new users, spending only 31% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that Uber has a highly differentiated product offering, giving it the freedom to invest its resources into new growth initiatives.
Profitability & Free Cash Flow
Investors frequently analyze operating income to understand a business's core profitability. Similar to operating income, adjusted EBITDA is the most common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of a company's profit potential.
This quarter, Uber's EBITDA came in at $1.38 billion, resulting in a 13.6% margin. The company has also shown above-average profitability for a consumer internet business over the last four quarters, with average EBITDA margins of 12.1%.
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Uber's free cash flow came in at $1.36 billion in Q1, up 148% year on year.
Uber has generated $4.17 billion in free cash flow over the last 12 months, a solid 10.8% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from Uber's Q1 Results
It was great to see Uber increase its number of users this quarter. On the other hand, it missed on bookings and revenue growth regrettably stalled. Looking ahead, bookings guidance for next quarter was below expectations. Zooming out, we think this was a tough quarter, showing that topline performance is worse than Wall Street is modeling. The stock is down 7.6% after reporting, trading at $65.1 per share.
Is Now The Time?
When considering an investment in Uber, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We think Uber is a good business. Its revenue growth has been exceptional over the last three years, and growth is expected to increase in the short term. And while its gross margins make it extremely difficult to reach positive operating profits compared to other consumer internet businesses, the good news is its top-tier ARPU growth shows the increasing value of its platform to its users. On top of that, its user acquisition is very efficient.
At the moment, Uber trades at 21.7x next 12 months EV-to-EBITDA. There's definitely a lot of things to like about Uber and looking at the consumer internet landscape right now, it seems that it doesn't trade at an unreasonable price.
Wall Street analysts covering the company had a one-year price target of $86.92 per share right before these results (compared to the current share price of $65.10), implying they saw upside in buying Uber in the short term.
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