Uber: Surprisingly, it has More than Double its Pre- Pandemic Revenue
the question is, have they double their losses as well?
Update: Since the original publication of this article we have also published our analysis on their Q2 earnings, you can read that here: UBER: Q2 Earnings
Founded in 2009 by Garrett Camp and Travis Kalanick started as a company focused on luxury ride sharing, only black luxury vehicles were part of the app, and the cost to customers was about 1.5 times that of a normal taxi. It was not until Lyft started to add regular everyday people as drivers that Uber launched their UberX product. Now in 2022 Uber has presence in 72 countries, principally in the United States, Canada, Latin America, Europe, Middle East, Africa and Asia (Excluding China and Southeast Asia)
Uber so far has been a disappointment for its investors. The company had its IPO back in 2019 opening that day at $42, yet its all time high is $64.05, just 52% over its opening day. It has dropped dramatically since then, in part greatly related to the pandemic. Uber was a company that was affected considerably on their mobility side of the business. Uber is now trading at $23.43 or $45.75b, way below the $42 at which it started on their first day of trading. Since 2019 the company has continued to add countries and services yet the stock has not responded. The question is whether this is something fundamental about the company or if it is just one bad thing followed by another, first was the pandemic, now we are in a bear market and a world economic slowdown.
Business Model:
Uber has a presence in 72 countries and more than 10,000 cities. They serve these regions with three main verticals, Mobility, Delivery and Freight.
Revenue Streams:
Mobility:
Products that connect customers with drivers in a variety of vehicles such as:
Cars
Auto Rickshaws
Motor Bikes
Minibuses
Taxis
Delivery:
Allows customers to search for restaurants and either order a meal or have it delivered and in some markets have groceries, alcohol and convenience store goods delivered as well.
Freight:
Its intention is to connect carriers with shippers using the Uber Platform. Allowing the carrier transparency on how much it would cost to ship something.
Uber business development is very active, they continue to add verticals and continue to acquire or exit markets and business. The figure below summarizes Uber’s recent activity in business development
Key Metrics / Performance
On the revenue side, quickly we see that there is a big change in trend. Revenue in the last few quarters has increased dramatically. Is more than double the revenue that they had in Q1 2020 or even Q4 2019.
Considering the performance of the stock for the past 12 months, down 45%, with the performance of revenue, up +136%, the performance of the business (at least on the top line, is impressive) Either the company is a victim of a bear market and is a big opportunity, or there are some serious issue on how they are financing this growth. For now we will focus on how they managed to more than double their revenue.
The impact of the pandemic was felt in mobility the most. The second quarter of 2020 had a drop in revenue of 68%, since then, it has recovered all and is 2% above Q1 2020. It is great that it has recovered the revenue but this vertical might be starting to show of unwillingness of customers to get back on an Uber. (Due to many things, like home office, some people still being afraid to share an Uber, etc. Lyft Active Riders is still below pre pandemic values by 16%, and both have higher prices)
Delivery on the other side has benefited greatly from the pandemic and the change of behavior in customers. It has become more and more common for people to order food online, even now that the pandemic is over. That is reflected on the growth that is seen in their revenue. It has come from being $527m before the pandemic to almost the same size of the mobility revenue at $2.5b in Q1 2021. This growth was partially accelerated by the acquisition of Postmates in Q4 2020, yet since then the growth has been consistent. (also during 2020 and 2021 the acquisition of Cornershop was completed a grocery delivery app in Chile and Mexico)
Uber reports metrics for Mobility and Delivery together, we can see that trips are close to being back to pre pandemic levels. But considering the great increase in delivery revenue and the fact that mobility is still flat (but helped by higher prices, higher by about 20%) we could assume that mobility still should have revenue improvement in the coming months as mobility trips get closer to pre pandemic levels.
Trips: defined Trips as the number of completed consumer Mobility or New Mobility rides and Delivery orders in a given period
MAPCs: the number of unique consumers who completed a Mobility or New Mobility ride or received a Delivery order on the platform at least once in a given month, averaged over each month in the quarter
Freight had barely any impact on the overall performance of Uber 24 months ago. The revenue was barely $200 million per quarter, in the last quarter Uber reported $1.8b in revenue from freight. A growth of 817% vs Q1 2020. (They have had acquisitions in the transportation space as well, like Transplace in 2021)
Freight and Delivery together have grown $3.6b in the last 24 months, mobility on the other hand has only increased by $51m in the same amount of time.
When looking at the revenue by geography Latin America is still lagging the rest are currently above their 2019 revenue with very strong growth coming from Asian and Europe.
Revenue growth has been great for Uber, but it is when you start to look at how profitable they are that one starts to understand the underperformance of the stock for the past two years.
Profitability for Uber is highly distorted due to write offs on investments like Didi or grab. Operating income brings a clearer picture of the real performance of the business. During the last 3 years Uber has accumulated losses of $17.3b. 2021. Surprisingly the worst year was pre pandemic.
COGS as a percentage of revenue has increased by 17 percentage points for the past 5 years. Uber explains the increase from 2021 to 2020 as $2.1b from courier payments and incentives, $660 million increase in insurance expense due to higher miles driven in the delivery business and $873 million increase in freight payments. Basically revenue growth came with a worse operating leverage than what they had, either the margins of the new business are worse than mobility or they are investing big amounts in incentives to get drives back on the platform. This number got even worse in Q1 2022 going up to 58%. All other spending categories have either stayed fairly stable or decreased as a percentage of revenue, yet all together sum 122% of the revenues.
Uber has said in their latest earning calls that they are now profitable in mobility, delivery and even freight in Q1 2022. But there is a catch, this is profitable under ‘’adjusted Ebitda’’. When you hear adjusted Ebitda usually you should be very skeptic, because you have to be very careful to what they are adjusting in that measurement.
For 2020 Uber claims -$2.5b in adjusted Ebitda and for 2021 -$774m. In Q2 they reported even a better Adjusted Ebitda, reported profitability for Mobility ($618m) Delivery ($30m) and freight ($2m) The big question is what are they adjusting, what are they excluding.
Let's look at both 2021 and Q1 2022. Many of the items excluded from the adjusted Ebitda are non cash items. Stock based compensation and D&A are the bigger components, together they account for $2.1b of the excluded expenses in the adjusted Ebitda for 2021
For Q1 2022 D&A and Stock based compensation were $613m, with a run rate of $2.4b
Despite the accounting ‘’tricks’’ that a company could do with ‘’adjusted Ebitda’’ (we all remember Community adjusted Ebitda by WeWork) there is real improvement in the profitability of Uber. When comparing the latest quarter to the previous year, there has been an improvement in almost every line, Operations and support, S&M, R&D, G&A and D&A, everything except cost, which we could expect again that could be coming from Freight (costs incurred with carriers for Uber Freight transportation), which, at least for now, seem to have lower margins and, as it keeps growing, it might keep reducing gross margin.
When it comes to actual cash burning, they have a lot of money spent in Stock based compensation. For them at least it is a good way to use their stock as currency, for investors it is somewhat negative, they are doing about $1.1b per year recently, $1.4b run rate for 2022. For a company valued at close to $50b is not that impactful and it is actually good, since it helps them to keep a clean balance sheet. (2019 was a lot higher due to expense for awards with a performance based vesting condition satisfied upon the IPO)
Cash is not a problem for Uber, despite the great amount of losses for the past years, they still hold $7.6b between cash and restricted cash (Current and Non Current). On the debt side they closed Q1 2022 with $9.2b, that is the same amount of debt they had in Q1 2021, so it has not grown for the past 12 months.
Cash coming out of the business to fund operations was $15 m in Q1 2022, meaning Uber finally would be able to sustain its operations from their own generated cash (and stock based compensation)
But what about CapEx? Is the money going out the window to fund CapEx investments? Fortunately for Uber, CapEx is low, the highest in the last few years has been $616m and the last twelve months were $289m
Uber has seen a lot of negative years in terms of cash flow burning, but it seems that it has reached stable footing, still far from profitable, still has not been able to have a real profitable year, a year without having to adjust their Ebitda to show signs of improvements. But at least they have reached a milestone where their operations can finance most of their business
Uber also holds equity stakes in many international companies in the delivery and mobility business. Didi has been a constant drag for its terrible performance in the stock market, and every time these move a lot in the market they will have a big impact in their full net income.
Outlook - Where do they go from here in terms of growth? :
Many in their IPO called Uber overvalued and downplayed the possible impact of growth coming from Delivery and Freight. You can find many videos on YouTube like this, where analyst Howard Yu called them a distraction, yet now these two verticals are bigger than what he called as the core (mobility) business.
So now we have to take a bit more seriously what they are calling new verticals, they have proven already that they can grow other businesses. So we will use this section to show some of these verticals that they are trying to grow.
Freight
This part of the business has grown already and very fast. Yet it is important to see the total size of the opportunity.
The size of the US freight market is $884b and the size of the total world market is $4T (by estimates shared by Uber in their investor day)
They currently hold $17b under management
They operate Freight mainly in the US, Canada and some regions of Europe.
84% of carriers own fewer than 4 trucks
17K brokers, charging an average of $110 per transaction
30% of miles driven are empty
This has been a highly fragmented and inefficient market. A platform like Uber's is likely to improve this greatly. The opportunity for Uber to continue growing this is big and likely to attract competition.
Car Rent - P2P Car Sharing
Uber is entering the car rental business with the latest acquisition of Car Next Door in Australia, Uber will focus first in developing the markets close geographically to Australia, but will expand this business to all the world. This service allows car owners to list their vehicle as available for rental, giving some additional income to car owners that have their car parked for most of the time.
Additionally there is also an option to get a rented vehicle delivered right in the customer’s home or location.
The size of the rental market globally is $55b and in the US is $30b
Mobility
For Uber their end game is to become the main option for mobility, to become an option cheaper than car ownership. They claim that consumer penetration (weekly active customers) of their mobility services is still low. In the United States it is about 3.9%, Canada 3.3% India 0.5%, Australia 6.5% and the highest Brazil 7.2%. They claim that the US rising to the penetration of Australia would bring $14b in gross bookings, that would be $2.8b in additional revenue. This increase in penetration though, is very difficult to achieve, it has to become more affordable for customers. This might be far easier said than done. But they will try to improve affordability with the following tools:
Bringing back Uber X Share
Adding Regular Taxis to the platform (more volume lowers operating cost and could lower final price for consumers)
In the future, autonomous vehicles. This one will take a lot of R&D
Delivery
They are trying to continue to add new options for delivery, they will try to enter more on the grocery side, and will as well try to enter in the fast delivery market.
Also they are starting to enter the e-commerce delivery business. They have partnered for example with Apple on same day delivery through what they call ‘’Uber Direct’’
Total gross booking as a percentage for total restaurant spend was at 3% for Uber. Difficult to say how high this could get, always a lot of this spending will be done at restaurants. When looking at global grocery, Uber had $3b in gross bookings in 2021, and they estimate a $2.5T market.
Subscription - Uber One
They are pushing to grow their subscription service, where they want to capitalize the fact that their platform offers both mobility and delivery. For $9.99 a month they offer unlimited delivery and 5% off on eligible rides (and few other minor things)
They had 6 million subscribers at the end of 2021. This revenue is included in both Mobility and Delivery.
Advertising:
Their platform is being used to add advertising on the mobility side and the delivery side. They want to leverage on 118 million active users.
They currently have 170K active advertisers, the revenue in 2021 was $141m and they are targeting to reach $1b by 2024.
Some of the possible risks for the company are:
Autonomous Vehicles: This will happen and probably somewhere in the next ten years. If they are not the one that makes it happen they will have their Freight and Mobility business at risk by the company that does this. This company could be either Tesla, Google (Waymo) or any newcomer that is slowly working on this. Uber is also working on this, but two things are important. They need to control the R&D spending on this and whenever they push a transition they cannot bring a war against their driver base. This last thing will be very difficult, because, if for example the competitor is Tesla, they will not wait any moment to just activate that on the whole Tesla fleet already out there. Uber’s position is very complicated, they have always been asset light, so they might need to partner with someone, someone that would have a big installed base and at the same time weak autonomous technology, so they could either license their technology on their vehicles or have revenue sharing with them.
Legal and Regulatory: They will always have regulatory issues. Politicians unfortunately all they want is votes. Uber will be the right target for politicians to gain political points to push for laws that either blocks themes from continuing in business, limiting their business or even forcing them to add drivers as their employees making their operations a lot less profitable
Profitability: They have shown some signs of improvements towards profitability, yet they still are spending a lot. They are far from long term targets and in order to fund growth in new verticals they could go back to their unprofitable ways.
Mature Market: the possibility that their Mobility market is close to maturity might be real. If they don’t manage to make riding with Uber more affordable to customers, it is unlikely that weekly penetration will increase in any dramatical way. Adding more cities is a finite way to grow this revenue vertical, increasing penetration is the only way they don’t hit the ceiling in terms of growth. Same fate could go for delivery, delivery in any platform is not cheap, and there is also a ceiling on the amount of people willing to pay for that expensive service, it also has to become more affordable to increase penetration. It is a difficult game, increase penetration becoming more affordable without worsening profitability
What could be the case for Uber being a good opportunity for the next 10 years?
Autonomous Vehicles: This is both a risk and an opportunity. If they manage to get the best technology and have a smooth transition to autonomous vehicles their cost will dramatically drop in mobility and freight, perhaps not as fast in delivery. This would make the company extremely profitable.
New Verticals: Advertising, Freight, Rental all have great potential in continuing accelerating revenue growth. All of these are still barely penetrated
Platform: They have many offerings in only one app. This will always be better for customers. They will always get back to the app for either mobility or delivery. It is similar to being a telco with both residential internet and wireless service. The ones that are convergent will have an advantage because they can leverage pricing and bundles with both (and subscription i.e Uber One). This will help them to compete with an advantage with a single product platform like instacart and lyft.
Uber One: Subscription services are a steady influx of cash flow. Brings stability and loyalty of customers and might be a way which they could use to make the product more affordable to customer.
International: Uber is everywhere, another reason why customers will always keep their app on their phones, another reason why their platform might be more sticky in the long term. Customers find it easy to open the same app in the US or in Panama or in Portugal. This international presence helps shield the company from legal issues. Their revenue is spread around more localities and jurisdictions.
Valuation
Uber has been a very difficult company to value in the past, since it was a cash burning machine. But it is starting to show signs of finally having its head above the water. Like previous deep dives we had a DCF analysis with three different scenarios.
All of the scenarios exclude any impact or benefits from autonomous vehicles. This is something that is highly difficult to predict, we could be years from it or decades from it.
Base Case: In our base case we continue to grow the three main verticals, but Mobility and Delivery reached maturity between 2025 and 2026. Freight takes a bit longer to reach maturity. Also included in the analysis are revenues from new verticals like advertising and Car Rental. For our base case we value Uber at $36 per share or about $72b
Conservative Case: In this case maturity comes earlier for all businesses resulting in a valuation of about $9.0 per share or about $17b. In this scenario the business has also lower margins and takes longer for Uber to reach profitability
Optimistic Case: The most optimistic case takes into account strong growth in Freight, higher penetration of mobility and delivery and strong growth from new verticals as well as better margins from levering from the platform scale. This resulted in a valuation of $57 per share or about $114b.
In most of our analysis Uber is currently undervalued. They are in better shape than what the market thinks and we believe that they have been dragged down by the bear market. Yet all of this depends on how they continue to get closer to profitability. If they go back to funding their growth with large losses they should be even lower. Next quarter will give a lot of information on that, we are getting farther away from the pandemic, so their spending and revenue growth will start to be more consistent with a expected trend for the coming years
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Uber: Surprisingly, it has More than Double its Pre- Pandemic Revenue
Hello,
I appreciate you posts .
Below is already negative, dont they to raise cash asap ?
Total Current Assets - Total Current Liabilities
https://freeimage.host/i/b7gAdv