Uber's Q1 2024 Earnings Preview: Strong Growth Expected in Ride-Hailing and Delivery Services
Global mobility and delivery service giant $Uber Technologies (UBER.US)$ is set to announce its first-quarter earnings for 2024 before the market opens on Wednesday, May 8th, Eastern Time. Given the rise in user travel volume and the outstanding performance of its delivery services, we anticipate that Uber's results for the first quarter will be quite impressive. As of the close of trading on May 3rd, Uber's stock price stood at $69.23.
![Uber's Q1 2024 Earnings Preview: Strong Growth Expected in Ride-Hailing and Delivery Services](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994456277-50b75a669f.png/big?area=100&is_public=true)
According to Bloomberg consensus estimates:
(1) Uber's total revenue for Q1 2024 is expected to reach $10.1 billion, a year-over-year increase of 14.5% and a sequential increase of 6%.
(2) Net profit for the first quarter is projected to be $480 million, up 400% year-over-year, with the company's gross margin expected to rise from 39% the previous quarter to around 39.8%.
(3) Earnings per share (EPS) are estimated to be $0.22, up 380% year-over-year, with a significant improvement in profitability due to last year's net profit and EPS both being negative.
I. Uber's Business Model and Operations
Uber, based in the United States and founded in 2009, initially gained fame for its revolutionary ride-hailing app. Its core business involves providing a digital platform that connects passengers in need of transportation services with drivers willing to offer rides, enabling instant ride-hailing through a smartphone app. Uber's business model currently operates on a commission-based system:
(1) The company has built a smartphone application that acts as an intermediary, allowing passengers to easily book vehicles on the platform for fast transportation, while also addressing the supply and demand imbalance in the traditional taxi industry and achieving flexible matching.
(2) The platform takes a certain percentage of each ride's fare as revenue, with drivers receiving the remainder. Additionally, the company is diversifying its income by expanding its services, such as food and parcel delivery (Uber Eats), freight (Uber Freight), and more.
Uber's main operations are categorized into three areas: mobility, delivery, and freight:
(1) Mobility services refer to Uber's ride-hailing business, which is the company's cornerstone, offering different levels of transportation services, such as the economical UberX, the premium Uber BLACK, and carpooling options (such as Uber Pool, now often called UberX Share). Users can hail rides through the mobile app and enjoy convenient point-to-point transportation services.
(2) The delivery business (renamed from food delivery in 2020) now includes other delivery services as well. Uber Eats, for instance, is Uber's food delivery platform, allowing users to order food from partner restaurants delivered by Uber's couriers. This segment has seen rapid growth in recent years.
(3) The freight business streamlines the traditional cargo transportation process, enabling businesses or individuals to book freight services through the app, with drivers accepting tasks for point-to-point cargo transportation and providing real-time tracking.
Currently, ride-hailing and delivery services account for approximately 50% and 45% of the company's total bookings, respectively. Since Uber earns a commission from orders, these two services are fundamental to the company's revenue growth.
Chart: Uber Total Bookings Composition (in million USD)
![Source: Company Announcements](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994586249-686979beae.png/big?area=100&is_public=true)
II. Mobility Business: Continuous Growth in User Numbers, Revenue Expected to Rise Significantly
Uber is a globally recognized ride-hailing platform, and its mobility business is one of the primary drivers of the company's revenue growth. Historical data indicates that since Q2 2021, the ride-hailing business has been growing rapidly, contributing substantial cash inflows to the company.
Chart: Mobility Business Revenue Growth (in million USD)
![Source: Bloomberg](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994620429-022d593d39.png/big?area=100&is_public=true)
We expect this business to continue its growth trajectory in Q1 2024 for the following reasons:
(1) The anticipated increase in user numbers is expected to drive order volume. Third-party surveys suggest a 10% increase in ride-hailing users in the first quarter, bringing Uber's order volume to 40-45% of the total market share, with a 5% increase in market share. According to Bloomberg consensus, the company's monthly active users (MAUs) are projected to reach 150 million in Q1, up 15.2% year-over-year. We believe it is unlikely for Uber's user growth to exceed market expectations.
(2) Following guidance from the Q4 earnings call, in Q1, the company plans to offer reservation services to those willing to pay higher fares, as well as cost-effective products including taxis, bicycles, and tricycles to attract both high-end and budget-conscious users.
(3) An increase in the number of drivers and participation is expected. Thanks to Uber's ongoing expansion into global markets and the introduction of joint taxi products, car rentals, and valet services in multiple countries, the total number of drivers on the platform is expected to continue to rise in the first quarter, further driving the increase in order numbers and allowing the company to earn more revenue from commissions.
According to Bloomberg consensus estimates, Uber's total bookings for mobility services in Q1 2024 are expected to be $19.15 billion, up 27.8% year-over-year, with mobility service revenue projected to be $5.5 billion, up 27.2% year-over-year and remaining stable sequentially.
III. Delivery Business: Enhanced Industry Position, Revenue Growth Expected to Remain Stable
Data indicates that the U.S. food service market is mature, with a chain rate close to 55%, showing a trend of "counter-chainization"—the more suburban and smaller the city, the more chain stores there are, making the delivery market in these areas profitable. It was a smart move for Uber to expand its delivery business in these regions. The company's delivery service experienced rapid growth during the pandemic, with delivery bookings growing over 150% year-over-year between 2020 and 2021. Currently, the delivery business has become the company's second growth engine.
We expect Uber's delivery services to continue to grow in Q1, driven by several factors:
(1) Membership numbers are expected to rise, creating synergistic effects. Research by the U.S. Consumer Group indicates an increase in Uber's food delivery membership (i.e., Uber One membership) and an increase in the average order value per customer, contributing to revenue growth.
(2) Category expansions are expected to be successful. According to earnings guidance, the grocery retail business is now fully integrated with Uber Eats. The platform aims to attract more retailers to join in Q1, increasing the number of users who order both food delivery and grocery items. By the end of February, such users accounted for 14% of total food delivery users.
(3) The company is organizing specialized teams to use AI algorithms for promotional activities. These algorithms are expected to provide different discounts to the right consumers at the right prices for various scenarios, increasing consumer spending on deliveries.
According to Bloomberg consensus estimates, Uber's total booking value for delivery services in Q1 2024 is expected to reach $17.54 billion, up 16.7% year-over-year, with total delivery service revenue projected to be $3.3 billion, up 6.4% year-over-year and maintaining stability sequentially.
IV. Freight Business: Expected Decline, Drag on Total Revenue
Wall Street generally holds a negative outlook for Uber's freight business development, mainly due to the ongoing uncertainty in the Middle East during Q1, which is expected to hinder growth in Uber's international freight business.
Analysts also point out that the logistics industry is very different from the taxi industry. On one hand, it is a B2B business with established industry rules that make it difficult for Uber to gain a competitive edge. On the other hand, Uber has not been able to bring more supply customers to the freight industry to change the market dynamics, leading to poor expectations for the company's freight business development.
According to Bloomberg consensus estimates, Uber's freight business bookings for Q1 are expected to be $1.28 billion, down 8.6% year-over-year, with freight service revenue projected at $1.29 billion, down 8%, becoming a negative factor in revenue growth. However, given that this business accounts for less than 15% of total revenue, its impact on the company's overall revenue is limited.
Overall, thanks to the strong growth potential of the mobility and delivery businesses, the company's total revenue is expected to achieve rapid growth. According to Bloomberg consensus estimates, Uber's total revenue for Q1 2024 is projected to reach $10.1 billion, up 14.5% year-over-year and up 6% sequentially.
Chart: Uber Total Revenue Change (in million USD)
![Source: Bloomberg](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994822879-edc2e8bee1.png/big?area=100&is_public=true)
V. Profitability Continues to Grow Steadily
On the expense side: Historical data shows that Uber's policy of controlling costs has seen significant results, with the company's operating expense rate reduced to 32.48% last quarter. Looking ahead to Q1, although providing car liability insurance to drivers will put upward pressure on costs, the company's senior management has stated that Uber will take measures such as reducing sales expenses to mitigate this pressure. We expect the company's expenses to continue to be stable. According to Bloomberg consensus estimates, the company's operating expense rate for Q1 is expected to remain around 31.6%.
On the profit side: Considering the expected significant growth in the company's core business in Q1 and proper control of expenses, we anticipate that the company's profitability will continue to grow steadily.
According to Bloomberg consensus estimates, Uber's net profit for Q1 is projected to be $480 million, up 400% year-over-year, with the company's gross margin expected to rise from 39% in the previous quarter to around 39.8%. Additionally, the company's EPS is estimated to be $0.22, up 380% year-over-year. The substantial increase in profitability is due to last year's net profit and EPS both being negative values.
It's important to note, however, that since the company had $1.17 billion in non-operating income last quarter, there is a noticeable decline in net profit and EPS compared to the previous quarter.
Chart: Uber Gross Margin (%)
![Source: Bloomberg](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994899124-1f5d7486ca.png/big?area=100&is_public=true)
VI. Last Quarter's Buyback Announcement Effectively Boosted Stock Price
On February 14th, Uber announced that its Board of Directors had authorized a buyback of up to $7 billion of the company's common stock. This is the first time the company has authorized a stock repurchase program. Senior management described this as a "vote of confidence in the company's strong financial momentum". This initiative is likely to result in a considerable return to shareholders in 2024. Based on the current market capitalization of $144.1 billion, the company is expected to achieve a shareholder return of approximately 4.86%.
Since the beginning of 2024, Uber's stock price has significantly outperformed the S&P 500 index. Looking at the stock price change, Uber's stock has increased by 12.44% since the new year. We believe that the anticipated improvement in Q1 performance has been amply reflected in the stock price. Considering the growth value of the company in the ride-hailing and delivery sectors in Q1, we expect both Uber's total revenue and net profit to rise, and we further speculate that there is a possibility of a slight increase in Uber's stock price following the earnings announcement.
![Uber's Q1 2024 Earnings Preview: Strong Growth Expected in Ride-Hailing and Delivery Services](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994945683-7ef823470a.png/big?area=100&is_public=true)
However, given the significant rise in the company's stock price since the beginning of the year and from a valuation perspective, major banks are offering an estimated P/E ratio of 56 times for Uber in Q1, maintaining a lead over the industry. Since the expected shareholder return is roughly in line with the risk-free rate of return, we believe the market's valuation of the company is on the high side.
![Uber's Q1 2024 Earnings Preview: Strong Growth Expected in Ride-Hailing and Delivery Services](https://ussnsimg.moomoo.com/sns_client_feed/71387724/20240506/1714994992791-e07e07c1a9.png/big?area=100&is_public=true)
Therefore, we do not expect a significant rise in the stock price following the earnings release. Thus, we recommend that investors :
Holding shares consider a covered call strategy. This strategy allows investors to benefit from the gains of the underlying stock while also retaining the option premium if the stock price does not exceed the strike price by the option's expiration date. This way, the option will expire worthless, and the investor can keep the option premium collected without having to sell the stock at a loss.
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