Uber results to test Stock’s 34% rally in 2023

Uber Technologies (UBER) advanced on fourth-quarter results expected before markets open Wednesday, with demand for rides and deliveries rising, fares higher and driver supply fully recovering from steep losses due to the pandemic.

The company is on track to post the first profitable year in its history based on Adjusted EBITDA, a measure that excludes interest, taxes, depreciation and amortization costs, as well as the significant expense of Uber’s stock-based compensation.

Key points

  • Uber is expected to post a fourth-quarter net loss of 16 cents a share on Feb. 8 before market open.
  • The company is profitable on an Adjusted EBITDA and free cash flow basis and expects near-term gains in profitability.
  • Passenger demand and driver supply have fully recovered from the sharp declines fueled by the pandemic.
  • Shares are up 34% year-to-date after falling 41% in 2022.

Three months ago, Uber forecast fourth-quarter adjusted EBITDA of approximately $615 million. That would bring the annual gain to about $1.7 billion, up from a loss of $774 million in the prior year.

Market consensus is in line with that forecast, while forecasting a net loss of 16 cents per share based on the average estimate from analysts tracked by Visible Alpha. (Net income includes costs excluded from Adjusted EBITDA, as well as changes in the market value of Uber’s multibillion-dollar portfolio of stock holdings.)

Analysts expect revenue of $8.4 billion, a 46% year-over-year gain thanks to a late-2021 acquisition and a change to Uber’s business model in the UK. In November, Uber forecast fourth-quarter gross bookings of $30 billion to $31 billion, representing 23% to 27% year-over-year growth, accounting for a currency headwind of 7 percentage points.

In the third quarter, gross bookings increased 32% year over year in constant currency terms, while the number of trips on the platform increased 19% year over year, helped by a 14% increase in monthly active users from a year before. “Underpinning this performance are several trends that are good drivers for us: reopening cities, booming travel and, more generally, a continued shift in consumer spending from retail to services,” said the Uber CEO Dara Khosrowshahi during the company’s third quarter conference call. Strong demand continued into October, he added.

Since September, the number of active users in Uber’s mobility segment has increased compared to three years earlier, before the COVID pandemic. The number of drivers on the platform has also completely reversed the decline due to the pandemic.

“The bumpiest parts of the ride are in the rearview mirror” for Uber and its surviving competitors, as their growing scale boosts profitability and allows them to keep marketing costs down, wrote an analyst at MoffettNathanson initiating coverage of Uber’s stock with a higher valuation and $47 share price target last week.

With car prices soaring since the start of the pandemic and higher interest rates making debt-financed purchases even less affordable, Uber and rival ride providers stand to gain, Piper Sandler analysts wrote a month ago. when they upgraded the stock to overweight from neutral with a $33 Price Target, which the stock achieved last week. New car prices have risen 18% in the past two years; Used car prices have increased by 25% in the same period.

Uber’s third-quarter comment that it reached “a tipping point” for “profitability expansion in the coming quarters” and rising investor expectations led to a 34% share price rebound since early 2023 , reducing the decline in the stock over the last year to 4.2% (see graph below).

Source: TradingView.

Uber key stats

Estimate for
Q4 FY 2022
Q4 FY 2021 Q4 FY 2020
Earnings per share ($) -0.16 0.44 -0.54
Revenue (Billion USD) 8.4 5.8 3.2
Withdrawal rate (%) 27.6 22.3 18.5

Source: Visible Alpha

The key statistic

Uber defines its pickup rate as revenue as a percentage of gross bookings, which in turn is the total dollar value of rides and deliveries on its platform, including driver earnings and incentives less tips. As such, the pickup rate represents the share of revenue the company keeps after paying its drivers.

Year-on-year hire rate comparisons have been skewed by a change last year that reclassified UK driver payments as a cost of revenue. Excluding the benefit relating to this change, the acquisition rate of the mobility segment in the third quarter would have been 20.2%, down from 22.3% in the previous year.

Including that benefit and other accounting changes, Uber’s overall acquisition rate in the third quarter was 28.7%, and analysts expect the acquisition rate to remain above 27% in the fourth quarter and beyond. This is important because Uber has been under pressure to increase driver earnings. If demand for passengers and deliveries remains strong while low unemployment limits the supply of drivers, the company may be forced to offer additional incentives to drivers.

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