$Uber(UBER)$ $Nasdaq100 Bull 3X ETF(TQQQ)$
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.
EBITDA growth coupled with margin expansion to drive growth. UBER’s EBITDA CAGR of 66% over FY22-25F is higher than LYFT’s 12%. This is mainly due to an expected rise in EBITDA margins for all the segments at UBER. Mobility segments EBITDA is expected to grow at a CAGR of 34% over FY22-25F while EBITDA margins to rise from 23% in FY22 to 27% in FY25F. (LYFT 8%). Delivery services to see a sharp rise in EBITDA margins from 5% in FY22 to 13% in FY25F while offering EBITDA CAGR of 55% over FY22-25F. Additionally, UBER also offers Freight services which achieved EBITDA breakeven in FY22, however facing challenges in 2023 due to softening of freight market, as demand is slowing and rates are falling coupled with driver shortages. Overall, UBER is expected to see its group margins expand from 5% in FY22 to 15% in FY25F. (LYFT’s EBITDA margin to drop to 4% in FY23 and rise to 8% in FY25).
UBER’s 4Q23F guidance was encouraging while Ad revenue is to play a major role in the topline. In 3Q23, gross bookings improved to US$35.3bn (+21% y-o-y) and trips grew to 2.4bn (+25% y-o-y) recording the highest quarterly number. UBER’s 4Q23F adjusted EBITDA guidance is 2.5% above the consensus estimates. Meanwhile, UBER is projecting US$1bn ad revenue in FY24F from Rider app, cartops and in-ride tablets. Advertising business continues to scale, UBER sees significant interest from advertisers and strong engagement for Journey ads on the mobility platform.
Food delivery business might be impacted more from inflationary pressure which might impact EBITDA margins. Freight segment might see slower growth since 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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