We’ve maintained our fair value estimate of $80 per share for Uber (UBER) after the firm reported better-than-expected second-quarter earnings. Investors have been increasingly skittish as the company faces a tough macro environment, with the most recent US jobs report fueling talks of a recession that would affect customer demand.
• Fair Value Estimate: $80.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High
What We Thought of Uber’s Earnings
Alongside macro issues, investors appear concerned about the impact of autonomous vehicle taxis and how their entrance into the ride-hailing business would affect demand for Uber’s mobility solutions. Against this bearish backdrop, we were impressed that the firm continued to execute well on its business model, with strong year-over-year bookings growth and solid profitability. While macro headwinds remain, along with the potential that AV companies like Waymo or Tesla (TSLA) could dent its stronghold in ride-hailing, we think Uber will be one of the winners in the long term. Despite shares rising sharply after the earnings report, we still view Uber as undervalued.
Uber’s second-quarter gross bookings were $40 billion, up 19% year over year, spearheaded by continued strength in its mobility business, which expanded 23% year over year in the second quarter. Uber’s net revenue for the second quarter increased 16% year over year, with the firm’s take rate (net revenue divided by gross bookings) dipping 80 basis points year over year. We have long touted the network effect around Uber’s business, which was in full showing this quarter with the firm’s audience (15%), trips (21%), order frequency (6%), and average net revenue per user (4%) all up year on year.
Uber also showcased its ability to increase margins while maintaining strong top-line expansion. Adjusted EBITDA increased to 3.9% of gross bookings from last year’s 2.7% on improved delivery margins
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