Uber’s Q2 Earnings Show Demand Growth and Little Impact From Inflation or Recession Fears
Maintaining $73 far value estimate on Uber stock; shares undervalued.
We have three main takeaways from Uber’s (UBER) second-quarter earnings report. First, the supply side of the platform continues to improve, not because of higher incentives but mainly because of higher demand and an increase in driver or vehicle utilization across many markets in the United States. Second, we think the network effect is driving further adoption of Uber’s subscription offering, Uber One, which now has 10 million members and whose growth is likely to expand margins. Third, to our surprise, management is not seeing much impact from inflation—contrary to what most businesses have been experiencing—nor the threat of an economic recession.
For the quarter, the mobility segment continued its impressive growth while demand for delivery displayed resilience after the pandemic. All-time highs in Uber users and trips approaching prepandemic highs display improvement in the firm’s network effect moat source. For the second quarter in a row, all business segments generated positive adjusted EBITDA. The firm also generated free cash flow for the first time, which management expects will continue. We remain confident that Uber will hit GAAP profitability in 2024 as the network effect drives operating leverage. We are not making any significant adjustments to our model and are maintaining our $73 fair value estimate.
Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.