Uber: This Rally Is Simply The Starting (NYSE:UBER)

Let’s face it: loads of issues are going proper for Uber (NYSE:UBER) proper now. Rideshare demand continues to soar, supply demand is rising even after the pandemic bump, and Uber’s inventory simply acquired added to the S&P 500. It’s the proper storm of highly effective catalysts that has fueled a ~140% rally within the inventory for the reason that begin of the 12 months.

The bull case for Uber shines shiny, particularly because it continues to edge out Lyft

The query many traders are asking now’s: is the celebration about to finish for Uber, or is there nonetheless upside left on this rally?

I final wrote a bullish opinion on Uber in September, when the inventory was buying and selling nearer to $45 per share. Since then, Uber has rallied greater than 40%: but I’m nonetheless holding agency to my place and reiterating my bullish perspective. I proceed to be impressed at Uber’s market share progress within the U.S., in addition to the progress that it’s making throughout every of its strains of enterprise. Uber is beginning to really present economies of scale.

On the similar time, since September, each Uber and Lyft have reported third-quarter outcomes: and it’s a story of two totally totally different corporations. Regardless of its considerably bigger scale, Uber additionally continues to develop at a sooner tempo – whereas additionally managing various segments outdoors of pure rideshare.

Right here’s a refresher on what I view to be the core bull thesis for Uber:

• Enormous $13.8 trillion TAM and “different bets” to assist continued growth. Mobility and Supply every carry $5 trillion market alternatives, and nascent Uber Freight is one other large $3.8 trillion market that’s closely underserved and ripe for tech disruption. Grocery, bundle supply, and the potential launch of activity success are different nascent methods during which Uber is increasing its dominance.
• Formidable market management. In many of the markets that Uber operates in, the corporate has a number one market share, and normally by a considerable margin. The corporate has selectively exited markets the place it misplaced share to a neighborhood incumbent (Seize in Singapore is an efficient instance), so it will probably give attention to turf the place it has the benefit. And in Freight, Uber’s worthwhile strains of enterprise can assist weaker enterprise freight demand whereas specialist rival Flexport declines.
• The sharing economic system is step by step taking priority over possession. Even pre-pandemic value inflation induced many to rethink shopping for automobiles, many shoppers have been already questioning the knowledge of automotive possession over rideshare. Proudly owning a automotive comes with upkeep prices, insurance coverage prices, and in city areas, usually hefty parking prices. Regularly, I count on automotive possession to say no and for rideshare to turn into the preeminent type of transportation.
• Uber One. Uber launched a $10/month subscription membership that gives, amongst different advantages, free deliveries on Uber Eats and 6% money again on rideshare. For my part, this transfer will assist to spice up rider loyalty and frequency on prime of producing a brand new subscription income stream.
• Large adjusted EBITDA and above GAAP profitability threshold. Pushed by the uptick in rideshare volumes plus larger take charges in each the rideshare and supply companies, Uber is driving great Adjusted EBITDA progress. As well as, the corporate just lately crossed into profitability from a GAAP perspective, one thing only a few tech corporations obtain.

For my part, Uber continues to be within the early phases of capturing an incredible market alternative throughout its verticals – keep lengthy right here and preserve driving the upward momentum.

Q3 obtain

Let’s now undergo Uber’s newest quarterly leads to higher element. For my part, essentially the most spectacular stat from Uber’s third quarter is that gross bookings in each of its core segments – mobility and supply – accelerated from the third quarter, regardless of more durable year-ago comps and macro pressures.

Check out the Mobility outcomes first:

Gross bookings grew 30% y/y to an astounding $17.90 billion. Two causes that is spectacular: first, the corporate accelerated two factors in opposition to 28% y/y progress in Q2; second, Lyft’s whole gross bookings in the identical time interval rose solely 15% y/y to $3.55 billion. Uber’s rideshare enterprise is rising at practically twice the tempo of Lyft, regardless of being greater than 4x its measurement when measured in gross bookings phrases.

A giant purpose behind this, after all, is Uber’s publicity past america (whereas Lyft is a home firm). And in abroad markets, I particularly applaud Uber’s product ingenuity in driving elevated enterprise.

A great instance of that is beneath: Uber Moto, the corporate’s cheaper motorcycle-hailing choice that’s hottest in Indonesia, India, and Thailand, noticed a 100% y/y enhance in journeys.

The corporate additionally famous that Uber Moto is an efficient cross-selling device for different Uber providers. Uber’s lengthy attain into these different international locations offers it an incredible progress pedestal and newer low-cost choices assist the corporate to place itself higher in opposition to Southeast Asian chief Seize.

Right here is a few insightful commentary from CEO Dara Khosrowshahi’s remarks through the Q&A portion of the Q3 earnings name, detailing the corporate’s worldwide progress levers:

So by way of Q3, pay attention, the quarter was sturdy throughout the board in each single geography, just about in each single product. However a few geographies to name out are the Asia Pacific areas and the LatAm areas. These areas accelerated fairly considerably on a year-on-year foundation between Q3 and Q2 on large absolute numbers.

And a few of these international locations have been very early in penetrating. So, for instance, in Japan and South Korea, our penetration fee is miniscule in comparison with the place we’re in the remainder of the world, and among the newer merchandise that we’re constructing out, for instance, Hailable Taxi are very giant components of {the marketplace} once more in Japan and Taiwan and Hong Kong and South Korea.

Then we acquired merchandise like Moto, that are two-wheelers which might be rising very, in a short time in Latin America as effectively in Brazil and various different LatAm markets. So whereas the expansion was fairly broad, I do suppose that the APAC and LatAm markets, specifically, have been tremendous sturdy, partially due to among the newer merchandise that we’re rolling out.

After which in the event you look extra broadly, we had a really, very sturdy summer season augmented by journey. As you recognize, journey has been completely booming. Leisure journey and Uber has a really excessive penetration of all of the journey client. After which what we’re seeing now back-to-school can be going very, very sturdy. In order that completely added to our Q3 energy and acceleration that frankly shocked us by way of its energy.”

In the meantime, in Uber’s supply enterprise (which many onlookers thought would decline post-pandemic), the corporate additionally managed to speed up gross bookings to 16% y/y, up from 14% y/y in Q2:

Working leverage within the supply enterprise (which was once a big loss-leader within the pre-pandemic period, as longtime Uber traders will painfully keep in mind) has additionally helped the corporate to drive substantial adjusted EBITDA progress, which greater than doubled y/y to $1.09 billion.

As a proportion of bookings, this elevated by 130bps y/y to three.1%; however as a proportion of income, which most traders would consider as “true” adjusted EBITDA margin, margin elevated 560bps y/y to 11.8%.

Word lastly that even the beleaguered areas of Uber’s enterprise are seeing enchancment. Freight, Uber’s third main phase and a ~15% contributor to income (although lower than 5% of bookings, as take fee on this phase is larger), declined -27% y/y – three factors higher than -30% y/y in Q2. As many traders are conscious, that is essentially the most macro-impacted portion of Uber’s enterprise that has suffered from decrease enterprise demand and softer delivery charges.

I’d argue, nevertheless, that this freight scenario could also be a long-term profit to Uber from a aggressive standpoint. Whereas essential rival Flexport, a Silicon Valley darling through the pandemic, is struggling (having just lately introduced a layoff of ~20% of its workers), Uber has its two different very worthwhile segments to tide over its freight operations till macro situations clear up.

Key takeaways

It’s tough for me to ascertain a future during which Uber doesn’t proceed to dominate the mobility and supply markets. Its current inclusion within the S&P 500 is a number one indicator of a enterprise that has turn into and can proceed to be, a core side of recent life. Keep lengthy right here.