Uber (UBER) Beats Estimates As Higher Labor Spend Drags on Profitability, Analysts Lower PTs but Remain Bullish

August 5, 2021 10:57 AM EDT
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Price: $39.75 +0.58%

Rating Summary:
    39 Buy, 8 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 7 | Down: 15 | New: 24
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Shares of Uber (NYSE: UBER) are trading about 4% in the green today after heading lower in extended Wednesday trading. The company reported mostly positive Q2 earnings.

Earnings per share were reported at $0.58 per share to beat the $0.51 expected from surveyed analysts. Sales for Q2 came in at $3.93 billion, again higher than the $3.75 billion.

The Mobility segment nabbed $8.6 billion in gross bookings while Delivery generated $12.9 billion. Uber maintained its previous position that expects to reach profitability on an adjusted EBITDA basis by the end of this year.

The company said it registered 1.51 billion trips on the platform, which is 4% higher from the first quarter.

“In Q2 we invested in recovery by investing in drivers and we made strong progress, with monthly active drivers and couriers in the US increasing by nearly 420,000 from February to July. Our platform is getting stronger each quarter, with consumers who engage with both Mobility and Delivery now generating nearly half of our total company Gross Bookings,” said Dara Khosrowshahi, CEO.

Oppenheimer analyst Jason Helfstein lowered the price target to $70.00 per share from $80.00 but maintained his “Outperform” rating. He believes that labor investments suggest mobility share gains for the second half of the year.

“2Q results bolster our thesis that UBER is working more aggressively to alleviate the driver-supply headwinds than closest competitor LYFT, setting the table for 2H Mobility share gains across the US. While Mobility GB is recovering faster than expected (4% above Street in 2Q), revenue missed sell-side estimates by 6% on significant lean into driver incentives, forcing larger than expected EBITDA losses. Delivery continues to outperform expectations, with 2Q revenue 12% above Street est and July GB run-rate suggesting m/m growth into seasonally weaker 3Q. Mgmt. returned to providing formal EBITDA guidance (first time since pandemic), suggesting more predictable business outlook,” the analyst said in a note sent to clients.

Morgan Stanley analyst Brian Nowak left his “Overweight” rating and $72.00 per share price target unchanged as he sees strong potential for shares to outperform going forward.

“2Q labor spend larger but that's now subsiding and states with lower gov’t subsidies offer encouraging harbingers of normalcy. Eats growing nicely through re-opening, Uber Pass ramping and we look to ’22 for strong platform EBITDA. $72 PT has ~85% potential upside with Uber trading near value of rides alone,” Nowak said in a note.

The analyst shared 5 key reasons why he remains bullish on UBER going forward.

1) Near-term, Investing Ahead of Demand and Competition to Re-activate Driver Base Faster:

“We view [labor] investment step-up as temporary and offensive heading into the recovery (and against Lyft) and are encouraged that the investments are delivering results as Uber saw 30% month-over-month new driver additions growth in the US in July even as they pulled back investment (with the reduction in July incentives driving an estimated ~$150mn quarterized increase in revenue Q/Q). As such, we expect Uber’s driver investment to decline significantly into 3Q,” said Nowak.

2) With Signs of Normalcy Already Showing Where Gov’t Stimulus Has Stopped:

Nowak reiterates that “labor issues are largely transitory and not structural” as there are signs the driver market returning to normalcy in the post-pandemic post-stimulus world.

3) Eats Holding Up Better than Expected Through Re-opening, and Driving New Rider Adoption

“Eats is also leading to ride share growth, as in 2Q over 20% of Mobility's first time riders in the U.S.and more than 40% of first-time riders in the U.K. were existing delivery consumers. These strengths of Eats (even through re-opening) speak to Uber’s platform strategy... further highlighting Uber’s customer acquisition cost advantage vs rideshare competitors.”

4) As Uber Pass Now 25% of Delivery Volumes:

Uber Pass has continue to grow as it now yields 30% of delivery gross bookings in the US and about 25% globally.

5) A $3.2bn Last Mile Grocery Business:

“We estimate that UBER's On-Demand business drove ~$800mn of gross bookings in the quarter, a ~$3.2bn annual run rate, and up ~$100mn vs 1Q21,” the analyst concludes.

Uber’s Q2 results yielded in total 5 price target cuts today.

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