If there's one company poised to thrive in the economic reopening, it's Uber Technologies (UBER -2.94%).
The transportation giant operates the world's largest ridesharing business, which has been decimated during the pandemic, but also has a thriving delivery business. As vaccines are deployed, normal social activities and commuting to work will begin to resume across much of the world, meaning Uber should see a strong recovery in its mobility segment, or what's known as ride-hailing.
In fact, the company just shared some revealing data with investors, signaling that the recovery is already brewing.
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Uber for comebacks
In a filing on Monday, Uber said that March 2021 was the best month in its history in terms of total gross bookings, which rose 9% from February 2021 on an average daily basis, to reach a company record.
In its mobility business, it had its best month since March 2020, with gross bookings reaching an annual run-rate of $30 billion, and the delivery business hitting a run rate of $52 billion, up 150% from a year ago.
The company also said that as vaccination rates rise in the U.S., it's seeing demand for rides recover faster than driver availability. Demand for delivery also continues to outpace driver availability. As a result, the company is increasing driver incentives, which will affect profitability, but the company is still targeting adjusted EBITDA profitability by the end of 2021.
What a post-pandemic Uber looks like
Though Uber's business is now operating at record levels, the numbers above show that there's still a lot of slack in the business, as the mobility segment still hasn't returned to pre-pandemic levels. The current run rate in both categories is now $82 billion in gross bookings. This would represent a 26% increase from $65 billion in 2019, and that growth is likely to accelerate as the mobility business bounces back.
Pre-pandemic, the mobility business contributed about three times the number of gross bookings as delivery and an even greater percentage of revenue. Uber splits delivery bookings with restaurants, meaning it has a lower take rate on those orders.
In fact, Uber's mobility has long been profitable on an adjusted EBITDA basis, while the delivery business continues to generate losses -- in part because of the revenue-sharing nature of the model. Even in 2020, during which normal business patterns were significantly distorted, Uber turned in a $1.2 billion adjusted EBITDA profit in mobility, but lost $873 million in the delivery segment.
In other words, the recovery of the mobility business is the key driver of Uber's overall profitability, and any pent-up demand for its rides will only add leverage to the bottom line.
Additionally, Uber has made a number of acquisitions over the last couple of years, including Postmates and Latin American grocery delivery start-up Cornershop in late 2019, and alcohol delivery company Drizly earlier this year.
It will be easier for the company to invest in and grow those businesses once the pandemic ends and demand normalizes, as they expand the company's capacity and scope. They could pave the way for more acquisitions, especially as a number of businesses around the world are reeling in the wake of the pandemic, potentially providing attractive buyout prices.
Uber CEO Dara Khosrowshahi commented recently on CNBC, saying that the company could eventually get into the marijuana delivery market once it's allowed to do so, showing its optionality, or its ability to expand into new industries.
Time to buy Uber?
While Uber as a business looks well-positioned for the economic recovery, there are still some lingering questions about the stock. First, Uber also disclosed that it would take a significant charge in the U.K. after reclassifying its drivers as workers. That's a reminder that Uber still faces a number of regulatory risks around the world concerning how it classifies drivers and how it competes with local taxi services, even as traditional taxi operations recede. The company scored a victory in California last year, but the battle with drivers is likely to remain a thorn in the company's side for the foreseeable future.
Looking at the stock, much of the recovery for Uber already looks priced in as the stock is trading near all-time highs, and has doubled from where it started 2020 after its IPO busted in 2019. Investors are counting on the company hitting its adjusted EBITDA profitability target, and on a steady recovery in the mobility business over the rest of the year.
After a $2.7 billion adjusted EBITDA loss in 2019 and $2.5 billion loss in 2020, turning profitable on that metric would represent a significant step forward for Uber. If the company does that, while maintaining its delivery business and capitalizing on pent-up demand in mobility, the stock could take a big step higher.
