Uber's result is still solid, but lacks surprises.

On February 7th, before the US stock market opened, "International DiDi" Uber released its fourth quarter earnings report for 2023. In summary, the core indicators for this quarter continued to show strong growth, but lacked surprises that would impress investors and the market, given the high expectations and valuation. The detailed points are as follows:

Demand remains robust, at least for now: In terms of the most core metric, the order amount in the Mobility sector reached nearly $19.3 billion, with a year-on-year growth rate of 29.5%, showing that the strong commuting demand is still present (currently). In the post-pandemic era, the Uber Eats delivery business achieved an order amount of 17 billion yuan this quarter, with a growth rate of 18.8%, which is more than 1 percentage point higher than the previous quarter. Although there is an impact from the low base of last year, it also reflects the trend of the delivery business gradually recovering and growing, but it is still within expectations. In other words, the growth of the order amount in the two core sectors this quarter is quite impressive, but compared to the already high expectations, there is no particularly surprising performance.

Slowing growth in order frequency, dragging down the growth rate of order volume: From the perspective of price and volume drivers, the growth rate of core orders (ride-hailing and delivery) declined from 25% to 24% this quarter, showing a slight downward trend. However, the year-on-year decline in average order value narrowed from 2.7% to 1.9%, offsetting the slight slowdown in volume growth.

The slight decline in order volume growth is mainly due to the slowing momentum of average order frequency per user this quarter (only increased from 17.2 times to 17.3 times compared to the previous quarter). However, corresponding to the still impressive user growth (14.5% YoY), it can be inferred that the increase in new users has diluted the average decline in order frequency. It is not a major issue.

Decline in monetization rate of delivery business, dragging down revenue: In terms of revenue, the revenue from the ride-hailing business this quarter was $5.54 billion, slightly higher than the market's expectation of $5.39 billion, with a year-on-year growth rate of 39%, which is still higher than the 29% growth rate of order amount. However, after the sudden increase in monetization rate from 20% to above 21% in 1Q23 (excluding the impact of model changes), it has remained flat in the following four quarters without further improvement. In other words, after the base period of this quarter, the revenue growth rate will significantly decline and converge with the order amount growth rate.

The revenue from the delivery business this quarter was $3.12 billion, with a growth of approximately 18% after excluding the impact of business model changes, which is consistent with the growth rate of order amount. In fact, the monetization rate of the delivery business has not increased compared to the same period last year, and has even declined compared to the previous quarter. From a business perspective, Dolphin Research speculates that this is a strategic choice made by the company to lower the monetization rate and promote scale growth in the face of industry headwinds. 4. Takeaway drags down gross margin slightly, but cost control has a greater impact: The decline in monetization rate of the takeaway business may have led to a slight decrease in gross margin, with gross profit as a percentage of order amount dropping from 10.4% to 10.3%.

However, the total expenditure on costs amounted to 3.23 billion, and the absolute value of cost expenditure continues to decrease on a MoM basis, despite the order amount continuing to grow at a rate of over 20%. This indicates that the company is still making significant efforts in cost control. Only operating support expenses have maintained double-digit growth in line with business growth, while all other expenses have either decreased or grown at a low single-digit rate.

Profit margin continues to improve, with takeaway showing the largest increase: Although gross margin has slightly decreased, due to cost reduction, the company's main profit indicator, adjusted EBITDA for the quarter, reached 1.28 billion, slightly higher than the market's expected 1.23 billion, but the extent of exceeding expectations is limited.

Looking at the different segments, the profit margin of the three major segments continues to steadily improve. Among them, the takeaway business achieved an adjusted EBITDA of 480 million, surpassing the previous quarter's 410 million and the market's expected 430 million, showing the most significant increase in profit among the three segments. Considering that the monetization rate of the takeaway business has slightly decreased, but profitability has increased, this also confirms that the company has significantly reduced investment and cost expenditure in the takeaway segment.

Q1 guidance for revenue and profit also lacks major surprises: For the next quarter's performance, the company expects the total order amount to be between 37 billion and 38.5 billion, with the lower limit close to the market's expected 37.3 billion, implying a slight decrease in growth rate of about 1-2 percentage points. In terms of profit, the guidance for adjusted EBITDA is between 1.26 billion and 1.3 billion, with the lower limit close to the expected 1.25 billion. In other words, the guidance for the next quarter is also good, but it lacks sufficient surprises.

Dolphin Research's viewpoint: Looking solely at this quarter's performance, Uber, with its steady growth in business volume and revenue, and continuous improvement in profit margins across major segments, still aligns with our previous bullish view. Both growth and profit indicators continue to move in an upward trajectory. The guidance for the next quarter also indicates an upward trend that has yet to be broken.

However, the downside is that the current price of around $70 reflects a relatively full valuation. Despite the impressive performance this quarter, it largely met expectations and lacked surprises. Moreover, third-party data has already shown signs of weakening demand for offline travel, dining, and hospitality in the United States. Therefore, while the market generally recognizes Uber, there is also some caution. Without clear and significant positive surprises, the motivation to further push up the valuation is somewhat lacking. And because the long-term steady-state profitability of the company is still unclear, Uber is more of a trend investment. As long as the company's performance continues to trend upward, holding onto it is still a good choice. However, it is also necessary to closely monitor whether there is a clear inflection point in demand to guard against the risk of a relative valuation callback, and choose to secure the gains.

The following is a detailed interpretation of this quarter's earnings report:

1. Growth is still worry-free, at least for now

In the Ride-hailing (Mobility) sector of Uber's core business, the gross bookings for this quarter reached nearly $19.3 billion, with a YoY growth rate of 29.5%, almost no slowdown compared to the previous quarter, which verifies the current strong demand for commuting. However, it is in line with the high expectations.

Dolphin Research believes that the continued recovery of the back-to-office trend in major cities in the United States, as well as the significant incremental demand in regions such as South America and the Asia-Pacific, are the main reasons driving the resilient demand.

In the post-pandemic era, the relatively headwind Uber Eats food delivery business achieved gross bookings of 17 billion yuan this quarter, with a QoQ growth rate of over 1 percentage point to 18.8%. Although it is influenced by the lower base of last year, it still reflects the trend of the food delivery business coming out of the trough and gradually picking up. However, it is also within market expectations.

Combining the food delivery and ride-hailing businesses, the core gross bookings for this quarter reached nearly $36.3 billion, with a YoY growth rate of 24%. Although third-party research data shows a marginal weakening trend in offline travel and accommodation in the United States in the fourth quarter, Uber's actual performance in delivery remains quite strong.

Looking at the breakdown of price and volume drivers, the growth rate of core bookings (including ride-hailing and food delivery) decreased from 25% to 24%, showing a slight decline in volume growth. However, the YoY decline in average order value narrowed from 2.7% to 1.9%, offsetting the slight slowdown in volume growth.

Behind the slight slowdown in order volume growth is mainly due to the slowing momentum of average orders per user (from 9% to 8%). In terms of MoM growth, the momentum has also stagnated, with only a slight increase from 17.2 to 17.3 orders.

Correspondingly, despite the still impressive user growth (14.5% YoY), it can be inferred that the increase in new users has offset the decline in average orders. In other words, Uber's user stickiness is still good.

Secondly, the monetization rate has remained stable or decreased, in line with revenue growth expectations.

Due to legal reasons, Uber's operations in certain regions such as the UK and Canada have transitioned from a platform model to a self-operated model. As a result, the reported revenue has changed from net commission to total payment amount, leading to an amplification of revenue. Therefore, the following analysis by Dolphin Research mainly focuses on the performance after excluding the impact of accounting changes.

Specifically, the revenue from the ride-hailing business this quarter was $5.54 billion, slightly higher than the market's expected $5.39 billion, with a YoY growth rate of 39%, still higher than the 29% growth rate of order volume.

However, it can be seen that the monetization rate (after excluding the mode change) suddenly jumped from 20% to above 21% in 1Q23, and then fluctuated slightly around 21% in the following four quarters without further improvement. In other words, after this quarter, as the base period passes, the revenue growth rate will slide significantly towards the growth rate of order volume and converge.

The revenue from the food delivery business this quarter was $3.12 billion, with a growth of approximately 18% after excluding the impact of the business model change, consistent with the growth rate of order amount. In other words, the monetization rate of the food delivery business has not increased YoY and has even declined MoM. Dolphin Research speculates from a business perspective that this is a strategic choice made by the company to lower the monetization rate and promote scale growth in the face of industry headwinds. As for Uber's freight business, it achieved a revenue of CNY 1.28 billion this quarter, maintaining a stable scale of over CNY 1.2 billion for three consecutive quarters. Due to the weakening demand for imports and exports, there is no highlight in the freight forwarding business in the short term, and there is no need to focus on it.

Taking into account all business segments, Uber's total revenue this quarter was USD 9.94 billion. With steady growth in core businesses such as food delivery and ride-hailing, and a decrease in the freight forwarding business due to a lower base, the total revenue growth rate increased by 4 percentage points to 15% MoM, which can be considered impressive. However, the difference from the expected USD 9.78 billion is minimal.

Thirdly, although the gross margin has slightly decreased, expenses continue to shrink, and the profit margin continues to improve.

The slight decrease in gross margin may be mainly due to the MoM decline in the monetization rate of the food delivery business, which dragged down the gross margin from 10.4% to 10.3% as a percentage of order amount. The absolute value of gross profit, which is USD 3.88 billion, is consistent with the expected USD 3.87 billion.

However, the total expenses amounted to USD 3.23 billion, and the absolute value of expense continued to decrease MoM while the order amount continued to grow at a rate of over 20%. This indicates that the company is still making great efforts to control expenses.

Specifically, apart from operating support expenses highly correlated with business growth, research and development expenses have also increased MoM, while marketing and management expenses continue to decrease MoM.

Overall, although the gross margin has slightly decreased, the adjusted operating profit has increased from USD 890 million to USD 1.08 billion, reaching a new high, and the profitability continues to improve.

4. Among the divisions, the food delivery business has shown the most improvement in profitability

The company's main focus on profit indicators, the adjusted EBITDA for this quarter was 1.28 billion, slightly higher than the market's expected 1.23 billion, but the extent of exceeding expectations is relatively limited. Looking at the divisions:

The adjusted EBITDA for the ride-hailing business was 1.45 billion USD, with a steady increase in profit margin MoM, slightly exceeding expectations by 4%;

The food delivery business achieved an adjusted EBITDA of 480 million, surpassing both the previous quarter's 410 million and the market's expected 430 million. It has shown the most significant improvement in profitability among the three major segments, and has exceeded expectations the most. Considering that the monetization rate of the food delivery business has slightly decreased, but the profitability has increased, it indicates that the company has significantly reduced its investment and expenses in the food delivery sector.

As for the freight business, it incurred a loss of 14 million this quarter, which is not significantly different from the previous quarter and market expectations;

In addition, the loss at the group headquarters level has expanded from 590 million to 630 million, which may be due to the increase in headquarters expenses or some new business attempts.

Dolphin Research's previous Uber research:

November 8, 2023 conference call: "Uber: Optimistic about Strong Future Demand"

November 8, 2023 earnings report review: "Uber: The Flaws of the American Version of DiDi Do Not Dim Its Brilliance, Can It Reach New Heights?"

August 2, 2023 conference call: "Uber: Confident in Continued Revenue and Profit Growth"

August 2, 2023 earnings report review: "The "American DiDi" Uber: Apart from Being Expensive, It Has No Flaws ?"

May 3, 2023 conference call: "Uber: Will Business Growth Remain Strong?" Earnings Report Review on May 3, 2023: "International DiDi" Uber: Will a strong quarterly report be the highlight?

Conference Call on February 9, 2023: Can Uber continue to grow while streamlining costs?

Earnings Report Review on February 8, 2023: "DiDi" in the United States: Will this small and beautiful wave outperform the big and strong?

Conference Call on November 2, 2022: Uber believes that travel demand remains strong, with a focus on improving user stickiness and habits (3Q22 conference call summary).

Earnings Report Review on November 2, 2022: Can Uber make money without growth, and will the market still buy it?

In-depth analysis:

On November 21, 2022: "The joys and sorrows of going through the pandemic, where is Uber's future heading?"

On October 14, 2022: "Navigating through the pandemic and inflation, the secret behind Uber's luck."

Risk disclosure and statement in this article: Dolphin Research disclaimer and general disclosure.