Uber's (UBER) $250M Driver Stimulus Campaign Seen as 'Strategically Smart Investment' that Reflects Surging Mobility Demand

April 8, 2021 10:15 AM EDT
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Uber (NYSE: UBER) launched a $250 million driver stimulus program Wednesday to boost drivers' earnings in a bid to attract more drivers to cope up with a surge in demand. The company hopes that boosted incentives and guarantees will help welcome existing drivers back to Uber but also ensure that new drivers do well as they learn the business.

“In 2020, many drivers stopped driving because they couldn’t count on getting enough trips to make it worth their time. In 2021, there are more riders requesting trips than there are drivers available to give them—making it a great time to be a driver,” the company said in a press release.

“We hope drivers new and old will take advantage of this opportunity over the next few months and join us as cities get moving again.”

Uber also presented stats that show drivers based in Philadelphia earn $31.03 per hour on average, more than those in Chicago, Austin, Miami, or Phoenix.

Morgan Stanley analyst Brian Nowak says Uber is "chumming up drivers” to cope with a surge in demand for mobility as the economy opens up.

“Uber's need to invest behind supply speaks (in part) to the faster than expected influx in ride demand Uber is seeing as the world reopens and vaccines are distributed. The greater than expected driver supply shortage is also likely (in part) driven by the recent $1,400 government stimulus checks which reduce incentive for drivers to drive in the near-term. But the benefits of these checks should lap by the end of 2Q,” Nowak said in a memo issued to clients.

“We believe Uber is targeting to return to relatively normal levels of driver supply by 3Q:21, more funding was needed. Big picture, we see this as a strategically smart investment to increase supply, decrease wait times and improve the rider experience as the world reopens...which is likely to be important to drivingrider retention through/post recovery.”

The announced plan is more of a “pull-forward of investment” as the company adjusts to a faster-than-expected recovery in demand.

Lyft (NASDAQ: LYFT), Uber’s key rival, is likely to follow the suit or either risk losing a market share and face labor shortages.

“As this happens, it will be increasingly important to monitor pricing strategies...and the extent to which Uber/Lyft continue to price rationally or whether Uber chooses to pass through a smaller portion of this higher cost (given their scale advantage) to work to take share from Lyft through the recovery,” adds Nowak.

Similar to the stance of MS analyst, BofA Securities' Justin Post sees this move from Uber as evidence of a stronger-than-expected demand for mobility.

“We expect any impact on the Mobility take rate would be offset by higher Mobility bookings, with strong demand trends in the US likely prompting the stimulus. One-third of adult Americans have now received at least one dose of vaccine, and Apple Mobility Data (see data on next pg.) shows US Transit activity is now down only 35% from pre-COVID levels, with April up 166% Y/Y. That said, some international markets could be a headwind to Mobility (Brazil still down 59% from pre-COVID levels in April, vs. February when Brazil was only down 28%),” Post says in a note.

The analyst reiterated a “Buy” on Uber as higher driver incentive announcement likely reflects the surging Mobility demand. On the other hand, this initiative is not expected to impact Uber’s ability to drive breakeven EBITDA by 4Q’21.

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