[October.2024] Decoding the earnings of ride-hailing giant Uber

After more than doubling in 2023, Uber's stock experienced increased volatility in 2024 but continued to trend upward, gaining about 30% since the start of the year. As the world's largest ride-hailing platform and the second-largest food delivery service in the U.S., Uber's stock has surged over twofold from its recent lows.

$Uber Technologies (UBER.US)$ will release its latest earnings results on October 31. Each earnings release may signal a potential investment opportunity, but before diving in, investors need to understand how to interpret their financial statements.

What could be driving Uber's stock rise? Let's dive into their financial reports to find out. We’ll focus on two key areas: revenue growth and improved profitability.

1. Revenue growth

After the post-pandemic, Uber's revenue growth rate has normalized, maintaining steady double-digit increases almost each quarter. While the explosive growth has tapered off, the stability is noteworthy.

Uber's revenue mainly comes from ride-hailing, food delivery, and freight services, with ride-hailing and food delivery being the core sources.

For platform-based businesses like Uber, revenue growth hinges on two factors: order value and monetization rate. An increase in either can drive revenue up.

Uber's ride-hailing order value grew by about 30% year-over-year in several quarters of 2023 but dipped to around 23% in Q2 2024. Food delivery orders, although growing at a slower rate, have picked up speed, with over 15% year-over-year growth in the last four quarters. Combined, ride-hailing and food delivery saw a total order value of approximately $38.9 billion in Q2 2024, up 19.7% from the previous year, though the growth rate has slowed compared to the prior quarter.

Breaking down order value further, we look at three components: monthly active users (MAUs), trips per customer, and average order value. Uber’s MAUs have shown strong growth, maintaining around a 14% increase year-over-year from Q3 2023 to Q2 2024, driving order value growth.

Trips per customer remained stable, though the growth slowed, with an average of 17.7 orders per user in Q2 2024, up 6% year-over-year. This boosted revenue from bookings. At the same time, trips per customer continue to grow for eight consecutive quarters, indicating growing user engagement.

When it comes to average selling price (ASP) per core trip, Uber's numbers have been less impressive. After strong growth in the second half of 2021, the growth rate declined throughout 2022, and most quarters since Q4 2022 have seen year-over-year decreases, which has held back overall order value growth.

Then, let's look at Uber's order take rate, which is the percentage of order value that Uber retains through commissions or service fees.

For ride-hailing, Uber's take rate has remained high, around 29% in 2023, and once surpassed 30% in Q1 2024. For food delivery, the rate improved, exceeding 20% before dropping to around 18% in Q2 and Q3 2023, and it is now stable at that level.

Overall, Uber's combined take rate from ride-hailing and food delivery is about 24.4%.

To monitor Uber's future revenue growth, a few key factors are important: the growth in MAUs, trips per order, and whether the ASP per core trip can stabilize and rebound. Additionally, maintaining or improving the overall take rate will be critical.

2. Profitability improvement

Uber's stock surge over the past year is largely attributed not just to steady revenue growth, but to significant improvements in profitability. Prior to the first half of 2021, Uber frequently posted quarterly operating losses exceeding $1 billion. However, starting in Q3 2021, these losses began to narrow, staying below $1 billion. By Q2 2023, Uber turned profitable, maintaining a positive operating income for the next four quarters.

In Q2 2024, Uber's operating profit was approximately $170 million, setting a new historical record.。

Generally, a company's profitability improves due to either strong gross margins or effective cost control. Uber's gross margin has declined from about 50% in 2021 to around 39.% in Q2 2024, which has been a drag on profitability.

Fortunately, Uber's stringent cost control measures have offset this decline. The economies of scale from revenue growth, combined with disciplined expense management, have significantly reduced various expense ratios.

For instance, sales expenses dropped from 38% of revenue in Q1 2021 to 10.4% in Q2 2024. Administrative expenses fell from 16% to 6.4%. Meanwhile, R&D expenses decreased from 17.7% to 7.1%. Overall, these combined expenses fell by nearly 50 percentage points, significantly boosting profitability.

As a result, Uber's operating profit margin improved from -52.5% in Q1 2021 to around 7.5% in Q2 2024, marking its transition to a consistently profitable tech giant.

Breaking down by business segments, Uber reports EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for each.

The Mobility segment has been a steady profit generator, consistently posting positive EBITDA since Q1 2021 and hitting new highs each quarter.

The Delivery segment achieved positive EBITDA starting in Q4 2021 and has grown rapidly, with a year-over-year increase of nearly 80% in Q2 2024.

Looking ahead, monitoring the continued growth of EBITDA in these two core segments may be crucial. Sustained growth here is likely to further enhance Uber's operating profit margin and overall profitability.

Having read this far, you may now have a deeper understanding of how to interpret Uber's financial reports. It's noteworthy that the release of earnings reports from prominent companies may present unique trading opportunities for different types of investors.

For instance, if an investor, after analyzing past reports and considering recent developments, believes a company's latest earnings will send positive signals and boost the short-term stock price, they might consider taking a long position. This could involve buying the underlying stock or purchasing call options.

Conversely, if the investor expects the earnings to be unfavorable and potentially pressure the stock price, they might consider taking a short position, either through short selling or buying put options.

If the report's outcome is unclear but volatility is expected, they might use a straddle strategy, buying both calls and puts.

However, investors should carefully assess their risk tolerance, particularly when considering high-risk trades like short selling or options, before making any trading decisions.

Summary

When analyzing Uber's financial reports, it could be very important to consider focusing on revenue growth and profitability improvements.

Revenue Growth:

• Monitor the growth in gross bookings, including the increase in MAUs and trips per user.

• Keep an eye on the stabilization and potential rebound of ASP.

• Watch the overall take rate to evaluate whether it remains steady or improves.

Profitability:

• Gross margins

• expense ratios

• EBITDA for both the Mobility and Delivery segments

• Operating margins