【October 2024】The world's largest ride-hailing platform, with the bottom rising more than double! How should we interpret Uber's performance?

After more than doubling in 2023, $Uber Technologies(UBER.US)$ the stock price has experienced increased volatility in 2024, but still maintains an upward trend, rising by about 30% since the beginning of the year. This global leading ride-hailing platform, as well as the second largest food delivery platform in the United States, has more than doubled in the past two years from its lows.

Uber will announce its latest performance in pre-market trading on October 31. Every time the company releases performance reports, it may also imply a good trading or investment opportunity. Prior to this, investors need to understand how to interpret its performance.

How should we interpret Uber's earnings and what drives its stock price growth? We can focus on two key points: revenue growth and improvement in profitability.

1. Revenue growth

After experiencing a doubling of revenue in one year following the pandemic, Uber's revenue growth rate has returned to a normal range. Despite a loss of explosiveness, Uber has maintained steady two-digit growth rate in its revenue for each quarter. Although its growth rate has slowed down, this means that Uber's revenue growth is stable.

Uber's revenue mainly comes from ride-hail services, food delivery services, and freight services. Ride-hail and food delivery are the most important revenue sources.

For platform-based businesses like ride-hail and food delivery, their revenue can be broken down into two factors: order amount and monetization rate. An increase in order amount or monetization rate can drive growth in revenue.

In terms of order amount, Uber's ride-hailing business saw a year-on-year growth rate of around 30% in several quarters of 2023, but dropped to about 23% in 2024Q2. The growth rate of the food delivery business orders has been less impressive, but it has accelerated, with year-on-year growth exceeding 15% for the past 4 quarters. Overall, the total order amount for the two core businesses of ride-hailing and food delivery in 2024Q2 was approximately $38.9 billion, a year-on-year increase of 19.7%, showing a slight decline compared to the previous quarter.

If we break down Uber's order amount further, it can be divided into three factors: number of active users, order frequency, and average order value.

In terms of the number of users, Uber's monthly active users have shown good growth momentum in recent quarters, with year-on-year growth rates ranging around 14% from 2023Q3 to 2024Q2, also becoming a major driving force for the growth in order amounts.

In terms of user ordering frequency, Uber has seen a slight decline in year-on-year growth rates in recent quarters, but the growth remains steady, reaching about 17.7 times in 2024Q2, a 6% year-on-year increase, which is also an important factor contributing to the growth in order amounts. At the same time, Uber's user ordering frequency had been growing for eight consecutive quarters, indicating an increasingly better user retention.

In terms of average order value, Uber's data is somewhat disappointing. After a significant increase in the second half of 2021, Uber's average order value growth rate has declined in each quarter of 2022 and has been lower on a year-on-year basis since Q4 2022. This has also dragged down the growth of order amount to some extent.

After looking at the analysis of order amount, let's take a look at Uber's monetization rate. The so-called monetization rate refers to the ratio of revenue created by the platform to the order amount, which can be in the form of commission or service fee, etc.

Looking at the ride-hailing business, Uber has relatively high monetization rates, maintaining around 29% in each quarter of 2023, and briefly exceeding 30% in 2024Q1.

For food-delivery business, Uber's monetization rate has risen for several consecutive quarters before Q1 2023, reaching the level of 20%. However, after a significant decline for two consecutive quarters in Q2-Q3 2023, it has stabilized at around 18%.

In terms of the overall ride-hailing and food delivery business, Uber's current overall liquidity ratio is approximately 24.4%, staying around 24%.

In summary, we can focus on three key points to better understand Uber's future revenue growth: whether its monthly active users and order frequency can maintain good growth momentum, whether the average order value can stabilize and rebound, and whether its overall monetization rate can maintain stable growth.

2. Improvement in profitability

Over the past year, Uber's stock price has skyrocketed, with much of the increase coming from a significant improvement in profitability in addition to steady revenue growth. Prior to the first half of 2021, Uber's quarterly operating losses often exceeded $1 billion. However, starting from Q3 2021, Uber's operating losses began to consistently narrow, staying within $1 billion, and by Q2 2023, Uber successfully turned losses into profits, maintaining positive operating profits for four consecutive quarters. In Q2 2024, Uber's operating profit was approximately $0.8 billion, marking a historic high.

Generally, a company's improved profitability is due to either outstanding gross margin or good cost control.

Looking at the gross margin, Uber's performance in the past two years has not been outstanding. The gross margin decreased from around 50% in 2021 to about 39.4% in Q2 2024, dragging down the profitability.

Fortunately, Uber's strong cost control has made up for the impact of the decline in gross margin. With the scale effect brought about by revenue growth and the company's own efforts in controling costs, Uber's various cost rates have all declined significantly in recent years.

For example, in the most typical three expense categories, Uber's sales expense ratio decreased from 38% in Q1 2021 to 10.4% in Q2 2024, the administrative expense ratio decreased from 16% in Q1 2021 to 6.4% in Q2 2024, and the research and development expense ratio decreased from 17.7% to 7.1% during the same period. The overall decrease in the three expense categories was as much as nearly 50 percentage points, becoming the main driver of the improvement in profitability.

As a result, Uber's operating margin has continuously increased from -52.5% in 2021Q1 to approximately 7.5% in 2024Q2, shedding the hat of losses and becoming a technology giant with sustained profitability.

Looking at the business by sector, Uber separately disclosed the EBITDA of each business sector.

In Uber's two core businesses, ride-hailing has always been the main contributor to profits, recording positive EBITDA since Q1 2021, and growth has been very stable in recent quarters, setting new highs each quarter.

The delivery business achieved positive EBITDA starting from 2021Q4. Although the current profitability scale is far from the ride-hailing business, the growth is very rapid, with a year-on-year growth rate of nearly 80% in 2024Q2.

In future performance, we can observe whether the EBITDA of these two core businesses of Uber can continue to maintain rapid growth, thus driving the growth of operating margin and further improving overall profitability.

After reading about Uber's performance, investors of different types might find a rare trading opportunity. Many top-performing companies release their performance every time, which might lead to different results for different investors.

Please use your Futubull account to access the feature.

Conversely, if investors believe that the latest performance of a certain company will not be optimistic and will bring pressure on the short-term stock price, investors may consider short selling, which can be done by considering margin selling or buying put options.

Of course, if investors think that the bullish and bearish direction of a company's performance is unclear, but the stock price may experience significant fluctuations after the performance release, then investors may consider the straddle strategy of buying call and put options to capture potential opportunities.

Finally, to summarize,

For Uber's performance, we should focus on its revenue growth and improvement in profitability.

For revenue growth, we should focus on the growth of Uber's order amount, including the continued growth of monthly active users and order frequency, whether the customer unit price can stabilize and rebound, and whether the overall monetization rate can remain stable or rising.

For profitability, we should focus on the subsequent trend of gross margin, the control of the cost ratio, the sustainability of EBITDA growth in the ride-hailing and delivery business, and the improvement of operating margin brought about as a result.