Uber Technologies UBER reported strong second-quarter 2024 results on Aug 6, before the opening bell. The leading ride-hailing company not only reported better-than-expected earnings per share and revenues but returned to profitability after posting a loss in first-quarter 2024. Adding to the optimism, second-quarter 2024 revenues increased 16%, year over year, which marked the fastest pace in five quarters. The strong earnings report naturally pleased investors, with the stock of this San Francisco-based company gaining 10.9%, ending the trading session at $64.87. Shares of rival Lyft LYFT increased 3.8% on Aug 6.
Upbeat Gross Bookings Aid UBER’s Q2 Earnings
With economic activities returning to normal levels in the post-pandemic scenario, people are traveling to work and other places as before. As a result, UBER’s Mobility business has been seeing buoyant demand, with segmental revenues increasing 25% in the June quarter.
With customer traffic picking up, gross bookings from the unit were highly impressive, in turn aiding second-quarter results. Gross bookings from the Mobility segment in the June quarter increased 23% on a year-over-year basis to $20.6 billion. The actual figure exceeded our expectation of $20.5 billion.
Uber’s Delivery business also performed well in the quarter, with segmental revenues growing 8% year over year. Gross bookings from the Delivery segment in the June quarter grew 16% on a year-over-year basis to $18.13 billion, in line with our estimate.
Total gross bookings in the quarter increased 19% year over year to $40 billion, with trips soaring 21% to 2.8 billion, or approximately 30 million trips per day on average. Expressing delight at the strong demand scenario, UBER’s CEO Dara Khosrowshahi stated. "The Uber consumer has never been stronger. More people are using the platform, and more frequently, than ever before."
Gross bookings are likely to remain strong in the third quarter of 2024 as well. The metric is anticipated to be in the $40.25-$41.75 billion range, representing growth on a constant currency basis in the 18-23% band from third-quarter 2023 actuals.
What’s Next for Investors?
For long-term investors, a single quarter’s results are not so important. They would rather base their investment decision on the underlying fundamentals. To aid investors’ decision-making regarding UBER, let’s delve into the relevant factors.
UBER is being aided by a strong operating model. Diversification is imperative for big companies to reduce risks, and UBER excels in this area. It has engaged in numerous strategic acquisitions, geographic and product diversifications and innovations. Even though Uber’s primary business is ride-sharing, it has diversified into food delivery and freight over time.
Uber’s endeavors to expand into the international markets are commendable and provide it with the benefits of geographical diversification. Prudent investments enable it to extend services and solidify its comprehensive offerings. Its focus on disciplined spending and cost-cutting measures also bodes well as far as bottom-line growth is concerned. The company’s long-term (3-5 years) earnings growth rate is an impressive 52.9%, higher than its industry’s 25.1%.
From a valuation perspective, the company’s shares currently trade at levels lower than its five-year median, going by the forward 12-month price/sales ratio.
Image Source: Zacks Investment Research
Despite the abovementioned tailwinds, there are certain factors that one needs to be mindful of before making an investment decision on UBER.
The performance of the Freight unit due to the slowdown in freight demand is concerning. Freight revenues declined in each of the first two quarters of 2024 due to lower revenue per load as a result of the freight market downturn. Additionally, Uber has been grappling with labor unrest for some time.
Despite the company’s efforts to improve operational efficiency and strategic growth initiatives, we are concerned about its high debt levels. Long-term debt increased 66.6% to $9.5 billion at second-quarter 2024-end from 2019 levels. Notably, UBER went public in 2019.
Long-Term Debt to Capitalization
Image Source: Zacks Investment Research
Despite the uptick following the second-quarter results, UBER shares have underperformed its industry as well as fellow industry player DoorDash DASH over the past six months.
Six-Month Price Performance
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Final Thoughts
We can safely conclude that despite the impressive second-quarter results, investors should refrain from rushing to buy UBER now as it is facing quite a few challenges. Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested for solid long-term prospects. The stock’s Zacks Rank #3 (Hold) supports our thesis.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
