Uber Earnings: Food Delivery Is Strong, but Autonomous Vehicles’ Impact on Ride-Hailing Looms

Key Morningstar Metrics for Uber Technologies

• Fair Value Estimate
  : $76.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Very High

What We Thought of Uber Technologies’ Earnings

Uber Technologies’ UBER second-quarter operating performance was in line with our expectations, with gross bookings narrowly beating management’s forecast by 2%. We view the third-quarter outlook as slightly soft, with decelerating top-line growth and margin expansion.

Why it matters: While autonomous vehicles remain small relative to the total footprint of ride-hailing (less than 1%), the key Uber debate remains the terminal impact of this new technology: leverage gained by removing drivers versus leverage lost from buying AVs and/or relying on too few providers. Current results don’t answer this key question, but we like certain defensive steps Uber is taking.

• On AVs, Uber is making progress with multiple partners (essential to the bull thesis) and spearheading an AV lab’s data sharing efforts to nurture this multipartner ecosystem. The firm also acknowledged the Waymo dependency risk, but we view Tesla AV scaling as a key risk.
• Network-effect metrics, like total users and frequency (trips per user), remain strong, reinforcing Uber’s marketplace flywheel. Only about 30% of US gross bookings come from the top 20 cities, which provides some padding against AV encroachment in the near term.

The bottom line: We maintain our narrow moat rating and $76 fair value estimate as we balance the strength of Uber’s key marketplace metrics against our view that AV companies are willing to bypass Uber to control the rider relationship.

• We see the shares as slightly undervalued post-earnings, as the market seems to be aggressively pricing in terminal value risks associated with autonomy, but we would wait for a better entry point to provide extra margin for error.
• We remain bullish on food delivery marketplaces. A larger pool of drone and sidewalk robot companies gives food delivery marketplaces greater bargaining power over economics, a sharp contrast to Waymo’s clear leadership in ride-hailing AVs. Given the relative business mixes, this creates a better setup for DoorDash than for Uber.