Uber: "American version of DiDi" in trouble, is it just a setback or really going downhill?

Before the U.S. stock market opened on the evening of May 8th Beijing time, the "international Didi" Uber released its financial report for the first quarter of 2024. Overall, the significant slowdown in the ride-hailing business this quarter is the biggest flaw. With current high expectations and valuations, some investors inevitably feel jittery and choose to take profits as a safety measure. The detailed key points are as follows:

1. Significant slowdown in ride-hailing business, temporary or trend? The biggest issue in this financial report is that the core indicator of the ride-hailing business (Mobility) - total bookings - was about 2.5% below market expectations. Year-on-year growth of 24.6% is significantly slower than the previous quarter's 29%, and also lower than the sell-side expectation of 27.8%.

Making the problem appear more severe is that the monthly active users, core order numbers, and average order value calculated by combining ride-hailing and food delivery businesses are generally below expectations by 0.5% to 1%. Considering that the order amount for the food delivery business is actually nearly 1% higher than expected, the situation of the three performance-driving factors of the ride-hailing business itself will be even worse than the overall performance.

2. Ride-hailing business increases monetization rate, seemingly salvaging the situation: In the situation of unsatisfactory order amounts, the revenue of the ride-hailing business this quarter was 5.63 billion, 2.4% higher than expected. After excluding the impact of changes in calculation methods, the comparable growth rate is 37.7%, which is also less than 1% slower than the previous quarter. The reason behind this is that after excluding the impact of model changes, the monetization rate has significantly increased from 21.2% in the previous quarter to 23.6%. Considering that the overall average order value has decreased year-on-year, a reasonable explanation should be that the company has reduced the commission to drivers.

3. Gross profit returns to its original state: While the increased monetization rate compensates for the decline in the ride-hailing business growth at the revenue level, at the gross profit level, it is "back to square one." This quarter, the year-on-year growth rate of gross profit is only 11%, significantly slower than the previous quarter's 17.5%, and lower than the market expectation by 1.7%. The gross profit margin is 39.1%, with a slight increase of 0.1% compared to the previous quarter (due to a higher base last year, it decreased by 1.3% year-on-year), so it does not play a "compensatory" role.

It is evident that the more "accurate" gross profit indicator and the more "fundamental" trend of order amounts are consistent. The reversal reflected in revenue data with more "discretion" cannot conceal the problem. The reasons for the decrease in gross profit margin also need to be closely monitored during the conference call.

4. Food delivery performs well: Apart from the order amount exceeding expectations, although the nominal monetization rate of the food delivery business decreased by 2.4% year-on-year, making the food delivery revenue seem 2.3% lower than expected. However, excluding the impact of changes in calculation methods, the actual monetization rate of the food delivery business slightly increased year-on-year. The comparable revenue growth rate decreased by only 0.9% compared to the previous quarter. The actual revenue growth of the food delivery business is not weak, and it is consistent with the trend shown by the order amount 5. One-time expenses drag down nominal profits, but actual performance is not bad: Gross profit is lower than expected, and operating expenses nearly doubled to about 1.2 billion, leading to a GAAP operating profit of only 170 million this quarter, significantly lower than the 600 million+ in the previous quarter and market expectations. However, the main reason for the high management expenses this quarter is the provision of up to 530 million in litigation/management expenses (possibly related to lawsuits surrounding driver labor positioning). If this impact is excluded, this quarter's expenses and operating profit are actually similar to the previous quarter.

The company is more focused on the adjusted EBITDA metric, which is also not bad. The company's overall adj. EBITDA is 1.38 billion, higher than the expected 1.32 billion. Both the ride-hailing and food delivery businesses' adj. EBITDA are also higher than expected by 3% and 9% respectively, with their profit margins also increasing compared to the previous quarter.

6. Second-quarter guidance shows good profits, but growth is uncertain: For the next quarter's performance, the company guides for a total order amount between 38.75 billion and 40.25 billion, with the midpoint lower than the market's expectation of 40.03 billion. However, the adj. EBITDA guidance is between 1.45 billion and 1.53 billion, with the lower end close to the market's expectation of 1.47 billion.

Dolphin Research's viewpoint:

It is obvious that despite the current and future profit guidance not being bad, the reason the market reflects negatively on Uber's performance this time is the unexpected slowdown in the growth of the ride-hailing business. More importantly, it will make the market worry about whether the slowdown is temporary or sustainable, leading to a downward adjustment in growth expectations for the full year and even the medium term.

Moreover, with Amazon's previously announced not-so-good retail revenue guidance and Block's performance showing a continuous decline in consumer payment growth, the market has generally begun to worry again about whether consumption (especially discretionary consumption) will decline in the second half of the year. Uber's performance this time has temporarily "confirmed" the above concerns. Given Uber's current fairly full valuation and expectations, any potential risks will prompt some investors to take profits. Therefore, a price pullback after this performance is reasonable.

On the other hand, we can see that Uber's profit growth has not been affected, and the other pillar segment - the food delivery business - has performed stronger than expected. Looking at the medium to long term, the company recently announced at an investor conference a revenue CAGR of 15-20% by 2026 and an adj. EBITDA growth CAGR of 30-40%. Combined with the company's past good execution results and the expected profit growth of 30-40% over the next 3 years, such a high-growth target is clearly quite rare In a pullback, if good prices appear, it will actually present good opportunities. As per our expectations, the company's pre-earnings market value is equivalent to 17x of the 26-year FCF.

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

I. Taxi business significantly slowing down, is it temporary or a trend?

The biggest flaw in this quarter's performance is that the company's most crucial taxi (Mobility) business had an order amount of approximately 18.7 billion, 2.5% lower than expected this quarter. Year-on-year growth rate is 24.6%, significantly slowing down by 4.9 percentage points compared to the previous quarter, and clearly lower than the expected 27.8%. The unexpected slowdown in the core business is not only bad news for this quarter's performance. More importantly, it will make the market worry whether this is a temporary weakness or a signal of a medium to long-term downward trend.

Moreover, none of the various industry reports read by Dolphin Research Institute believe there is any downside risk, which is a real miss for the market.

In comparison, the market does not have high expectations for Uber Eats takeaway business, with an order amount of 17.7 billion this quarter, slightly better than expected. The year-on-year growth rate is 17.8%, although slightly slower than the previous quarter, it is more due to the base effect, and the absolute amount has reached a new high (+4% QoQ), which can be considered relatively good performance.

Due to the drag from the taxi business, the overall order growth rate of the core business (taxi + takeaway) has also slowed down significantly from 24% to 20%, slightly lower than expected by 0.9% (approximately $300 million).

Making the issue appear more serious is that active user numbers, order volume, and customer numbers, the three major growth driving indicators, are all slightly lower than expected by 0.5% to 1%, and because the growth of the takeaway business is stronger than expected, the performance of the taxi business itself on these three indicators is worse than what the overall data shows.

Specifically, the overall order volume growth rate of the core business has slowed down from 24% to 21%, lower than expected by 1.1%. Average order value has decreased by 1.2% year-on-year, lower than expected by 1.1%. Monthly active users this quarter decreased by 10 million compared to the previous month, 0.5% lower than expected.

The average number of orders per monthly active user remained flat at 17.3 times per quarter, with no signs of deterioration compared to the previous period. However, the year-on-year growth rate has significantly slowed down to 5.7%, casting a shadow on whether it can further increase in the future.

Secondly, the ride-hailing business has increased its monetization rate slightly, partially recovering from the decline. Due to legal reasons, Uber has shifted some of its operations in regions such as the UK and Canada from a platform model to a self-operated model. As a result, the reported revenue has increased as it changed from net commission to total payment amount. Therefore, most of the following analysis will be based on the performance after excluding the impact of accounting changes.

Despite a noticeable slowdown in order volume growth, the revenue from the ride-hailing business this quarter exceeded expectations due to the increase in monetization rate. Specifically, the revenue this quarter was 5.63 billion, 2.4% higher than expected. Excluding the impact of the change in accounting standards, the comparable growth rate was 37.7%, which is less than 1% slower than the previous quarter.

The reason for this outperformance is that the monetization rate, excluding the model change, suddenly increased from 21.2% in the previous quarter to 23.6%. Looking back at the monetization rates for the four quarters of the previous year, they all remained slightly above 21%, indicating that this increase was quite sudden. Since the average order value is likely to decrease year-on-year, a reasonable explanation is that the company reduced the commission to drivers.

As for the food delivery business, the nominal monetization rate decreased by 2.4 percentage points year-on-year, resulting in a 2.3% lower-than-expected revenue for this quarter. However, after excluding the impact of accounting changes, the monetization rate for the food delivery business actually slightly increased year-on-year.

Therefore, from the perspective of expectation deviation, it seems that the ride-hailing business is strong while the food delivery business is weak. However, the actual situation is not as straightforward.

The trend shown in the order volume data at the operational level better reflects the truth As for Uber's freight business, this quarter's revenue is about 1.28 billion RMB, continuing to decline year-on-year and has remained at the 1+ billion scale for four consecutive quarters, with little impact on the company's core business and valuation, and the market is not very concerned.

When summing up all businesses, Uber's total revenue this quarter is 10.13 billion USD. Due to the increase in monetization rate of the ride-hailing business, the revenue performance is not bad. The total revenue this quarter meets or slightly exceeds market expectations, with a year-on-year growth rate of less than 1 percent. From this perspective, Uber's performance this quarter is not bad.

Third, increasing monetization to supplement income cannot change the fact that the gross profit margin is lower than expected.

Due to the unstable revenue caused by constantly changing metrics, Dolphin Research has always believed that gross profit is a more accurate indicator of Uber's revenue situation. Specifically, this quarter, Uber's gross profit margin is 39.1%, a slight increase of 0.1 percentage points compared to the previous quarter (a decrease of 1.3 percentage points year-on-year due to a higher base last year), and it does not have the effect of "making up". Therefore, the year-on-year growth rate of gross profit is 11%, significantly lower than the 17.5% in the previous quarter, and 1.7% lower than market expectations.

It can be seen that the more effective indicator of gross profit is consistent with the underlying trend of order amount, and the reversal shown by more "autonomous metrics" of revenue does not change the actual problem.

Fourth, the sharp drop in profit is due to one-time factors, and the actual performance is not bad.

Since the gross profit was already lower than expected, and the operating expenses, especially the management expenses, nearly doubled to 1.2 billion this quarter, resulting in a GAAP operating profit of only 170 million, significantly lower than the 600 million+ in the previous quarter and market expectations. However, this quarter's management expenses include a provision of up to 530 million for litigation/management expenses.

Excluding this impact, this quarter's expenses and operating profit are generally the same as the previous quarter The company's focus on the adjusted EBITDA indicator also reflects that this quarter's performance is not bad. Specifically, the company's overall adj. EBITDA is 1.38 billion, higher than the expected 1.32 billion, and the EBITDA profit margin for the ride-hailing and food delivery businesses continues to rise:

The adj. EBITDA for the ride-hailing business is 1.48 billion US dollars, nearly 3% higher than expected;

The food delivery business achieved adj. EBITDA of 530 million, almost 9% higher than expected, the most exceeding expectations among all sectors, consistent with the order volume;

As for the freight business, the loss for this quarter expanded to 21 million, higher than the expected loss, but not significant;

The loss at the group headquarters level is 600 million, showing a narrowing on a quarter-on-quarter basis.

From various indicators, Uber's profit release this quarter is not bad.

Dolphin Research's previous studies on Uber:

November 8, 2023 conference call " Uber: Bullish on Continued Strong Demand"

November 8, 2023 financial report review " Uber: American Version of Didi with Flaws, Can It Reach New Highs Again?"

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

August 2, 2023 financial report review " “American Didi” Uber: Expensive but Flawless"

May 3, 2023 conference call " Uber: Will Business Growth Remain Strong?"

May 3, 2023 financial report review " “International Didi” Uber: Will the Strong Quarterly Report be the Last Highlight?" February 9, 2023 Conference Call "Can Uber continue to grow while streamlining costs?" Link

February 8, 2023 Financial Report Review "American 'Didi': Will this wave of 'small and beautiful' outshine the 'big and strong'?" Link

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

November 2, 2022 Financial Report Review "Can Uber make money without growth, and will the market still buy it?" Link

In-depth:

November 21, 2022 "After experiencing the 'bitter and sweet' of the pandemic, where is Uber's future headed?" Link

October 14, 2022 "Navigating through the pandemic and inflation, the ace behind Uber's luck" Link

Risk Disclosure and Statement for this article: Dolphin Research Disclaimer and General Disclosure