Uber Technologies, Inc. (UBER) develops and operates technology applications supporting a variety of offerings on its platform. UBER operates in the US, Canada, LATAM, MENA, Europe, and APAC regions. UBER operates three business models: mobility, delivery, and freight. UBER’s market share in mobility and delivery stood at 72% and 24% respectively in the US.
Investment Overview
UBER enjoys certain key advantages over its peers. UBER’s market share of above 70% in mobility in the US & Canada is much larger than its competitor LYFT given the scale advantage of UBER. Operates in 72 countries and over 10,500 cities around the world. UBER also offers Delivery services which grew 3x gross bookings compared to pre pandemic. Additionally, UBER also offers Freight services. Not many drivers in the mobility business might opt for delivery business due to different set of challenges in both the businesses. Similarly, Freight business is also about connecting Shippers and truckers which is a different kind of business. However, UBER is making headway with positive EBITDA achieved in both the new businesses.
Revenue growth and margin expansion to drive EBITDA growth. UBER’s EBITDA CAGR of 43% over FY23-25F (Dec YE) is slightly below LYFT’s 47%CAGR, however from a much higher base (UBER’s FY23 adj EBITDA was 18x higher than LYFT’s). Mobility segment’s EBITDA is expected to grow at a CAGR of 28% over FY23-25F with EBITDA margin rising from 25% in FY23 to 28% in FY25F. UBER’s Delivery segment margin is projected to increase from 12% to 18%, while offering adj EBITDA CAGR of 40%. Overall, UBER is expected to see its group margins expand from 11% in FY23 to 16% in FY25F. (LYFT’s EBITDA margin dropped in FY23 to 5%, expected to rise to 8% in FY25F).
Encouraging 1Q24F guidance while Ad Revenue to exceed earlier expectations. UBER guides 4Q23F Gross Bookings to grow at 19% - 22% (+0% - 2% q-o-q) into a range of US$37.0bn – US$38.5bn. Adjusted EBITDA guidance is US$1,260m - US$1,340m for 1Q24F, with the midpoint inline with the consensus estimates of US$1,291m. Meanwhile, UBER projects to achieve US$1bn run-rate ad revenue in FY24F from Rider app, cartops and in-ride tablets, compared to US$900m in 4Q23. Smaller businesses advertising on UBER is supporting this rapid growth. UBER sees significant interest from advertisers and strong engagement for Journey ads on the mobility platform.
Maintain BUY with a higher TP of US$95 (prev US$85). Our TP for UBER is based on 30x EV/EBITDA on a blended 12m forward EBITDA of US$6.6bn and net debt of US$1.4bn. The upward revision in TP is due to consensus raising FY24F/25F EBITDA by 1%/2%. Our 30x target EV/EBITDA is based on a 50% premium to peer average of 20x in FY24F. Most of the peers are subscale Food delivery only companies except for LYFT. The significant premium is due to UBER’s market dominance in mobility and a diversified business model. UBER is currently trading at 25.2x 12m forward EV/EBITDA, at a 47% premium to LYFT’s 17.1x.
Risks
Food delivery business might be impacted more from inflationary pressure which might impact EBITDA margins. Freight segment might see slower growth as global freight charges have corrected since mid-2022. Furthermore, UBER operates in a highly regulated industry, and changes in regulations or new regulatory requirements could significantly impact its business.
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