Uber Results to Test Stock's 34% Rally in 2023

Uber Technologies (UBER) has been on a roll ahead of fourth-quarter results due before markets open Wednesday, with demand for its rides and deliveries up, fares higher, and the supply of drivers fully recovered from steep pandemic losses.

The company is on track to post the first profitable year in its history based on adjusted EBITDA, a measure that excludes interest, taxes, depreciation and amortization costs, as well as the significant expense of Uber's stock-based compensation.

Three months ago, Uber projected fourth-quarter adjusted EBITDA of about $615 million. That would take the annual gain to about $1.7 billion, compared with a loss of $774 million in the prior year.

Market consensus is in line with that forecast, while anticipating a net loss of 16 cents per share based on the average estimate of analysts tracked by Visible Alpha. (Included in net earnings are costs excluded from adjusted EBITDA as well as changes in the market value of Uber's multi-billion-dollar portfolio of equity investments.)

Analysts expect $8.4 billion in revenue, a gain of 46% year-over-year boosted by a late 2021 acquisition as well as a change in Uber's U.K. business model. In November, Uber projected fourth-quarter gross bookings of $30 billion to $31 billion, representing growth of 23% to 27% year-over-year adjusted for a currency headwind of 7 percentage points.

In the third quarter, gross bookings were up 32% year-over-year in constant currency terms, while the number of trips on the platform increased 19% year-over-year, aided by a 14% gain in monthly active users from a year earlier. "Underlying this performance are several trends that represent tailwinds for us: cities reopening, travel booming, and, more broadly, a continued shift of consumer spending from retail to services," Uber CEO Dara Khosrowshahi said on the company's third-quarter conference call. The strong demand continued in October, he added.

As of September, active ridership in Uber's mobility segment was up from three years earlier, before the COVID pandemic. The number of drivers on the platform has also fully reversed its pandemic decline.

"The bumpiest parts of the ride are in the rearview mirror" for Uber and its surviving competitors, as their growing scale boosts profitability and lets them hold down marketing costs, wrote a MoffettNathanson analyst in initiating coverage of Uber's stock with an outperform rating and $47 share price target last week.

With car prices up sharply since the start of the pandemic and higher interest rates making debt-financed purchases even less affordable, Uber and rival ride providers will benefit, wrote Piper Sandler analysts a month ago when they upgraded the stock to overweight from neutral with a $33 price target, which the stock reached last week. New car prices have increased 18% over the last two years; used car prices are 25% higher over the same period.

Uber's third-quarter commentary that it's reached "an inflection point" for "expanding profitability over the coming quarters" and rising investor expectations have driven a 34% share price rebound since the start of 2023, trimming the stock's decline over the past year to 4.2% (see chart below).

Uber Key Stats

_{Source: Visible Alpha}

The Key Statistic

Uber defines its take rate as revenue as a percentage of gross bookings, which are in turn the total dollar value of rides and deliveries on its platform, including driver earnings and incentives net of tips. As such, the take rate represents the share of receipts the company keeps after paying its drivers.

Year-over-year take rate comparisons have been skewed by a change last year reclassifying driver payments in the U.K. as cost of revenue. Excluding the benefit related to that change, the mobility segment's take rate in the third quarter would have been 20.2%, down from 22.3% a year earlier.

Including that benefit and other accounting changes, Uber's overall third-quarter take rate was 28.7%, and analysts expect the take rate to remain above 27% in the fourth quarter and beyond. That's important because Uber has been under pressure to raise driver earnings. If ridership and delivery demand remain strong while low unemployment limits the supply of drivers, the company could be forced to offer additional driver incentives.