Sometimes, when a business experiences a big mistake or highly adverse conditions, that difficult period may be the greatest gift for long-term investors -- providing the business survives. For instance, while many tech companies didn't survive the dot-com bust, those that did, such as Amazon and Booking Holdings -- formerly known as Priceline -- came out much stronger and went onto thrive over the long-term.
Uber (UBER -2.03%) went through such a trial during the COVID-19 downturn of 2020. While the company was able to survive thanks to its Uber Eats food delivery and small Uber Freight segments, the company's main mobility segment experienced a big downturn.
The pandemic forced Uber, under new CEO Dara Khosrowshahi, to cut costs and focus on efficiency. With the company continuing to keep that ethos in mind, Uber's recent results showed the benefits of making it through that period -- and it's a lesson other tech companies could stand to learn in today's tougher economy.
2022 was a bad year for many tech stocks, but a good one for Uber
Uber recently reported its fourth quarter and full-year 2022 results, displaying substantial revenue growth, and importantly, a flip to positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and free cash flow.
|
Metric |
2021 |
2022 |
Growth |
|---|---|---|---|
|
Bookings |
$90,415 |
$115,395 |
28% |
|
Revenue |
$17,455 |
$31,877 |
83% |
|
Adjusted EBITDA |
($774) |
$1,713 |
N/A |
|
Free cash flow (excluding HMRC VAT claims settlement) |
($743) |
$1,123 |
N/A |
|
Operating income (GAAP) |
($3,834) |
($1,832) |
(52%) |
Data source: Uber Q4 earnings release. Dollar figures in millions.
While Uber's stock still hasn't recovered all the way its sell-off from its 2021 sell-off, it has rallied some 72.4% off its lows this past summer. Moreover, Uber now looks to be on a path to achieve that elusive positive GAAP operating profit some time this year.
On the fourth-quarter conference call with analysts, Chief Financial Officer Nelson Chai shed some light on the reasons behind the company's recent success.
[O]ur call-to-action moment was actually in 2020. And if you recall back then, our mobility business was over 85% of the company's gross bookings. And as we sat here in April of 2020, that business was down 80%. So as you recall, we acted pretty decisively. During that time, we took over $1 billion of costs out of our infrastructure. We shuttered down a bunch of businesses. And unfortunately, we did have to let go over 20% of our headcount. So we've been really focused on efficiency since then.
Not only that, but Chai elaborated that Uber aims to hold its headcount flat in 2023. While some may think it may be hard to grow with a flat headcount, Chai also pointed out that Uber's net bookings have nearly doubled over the past couple of years, yet Uber has only grown its headcount by about 10% over that time, outside of the Freight business segment. So even if headcount is flat, there's a good chance Uber is still able to grow in the year ahead.
Uber's achievement stands in stark contrast to just about every other large tech company, which saw sales boom during the pandemic, followed by a mad hiring spree over 2020 and 2021. Now that the Federal Reserve is raising rates and the tech sector is decelerating sharply, a large number of big technology names have announced layoffs as they struggle with declining or negative profitability.
Image source: Getty Images.
Looking ahead
Certainly, at a $72 billion market cap, Uber has a long way to go toward proving itself to more discerning profit-focused investors in this era of higher interest rates. However, the company has several initiatives going on that can efficiently drive more profitable growth in the near and medium term.
The company's Uber One cross-platform membership program has been a success. Membership roughly doubled in 2022 to over 12 million members, and the company just rolled out the Uber One program to several overseas markets in the fourth quarter, including Chile, France, Japan, Spain and Taiwan. As Uber One members spend about 4.1 times the amount on Uber services non-members do, the recent overseas launch is another reason to be optimistic.
In addition, one of the best ways a platform business can garner incremental profits is through advertising. Uber's ad business is at a $500 million run rate, but Khosrowshahi sees substantial upside to over $1 billion in revenue by 2024. Only about 25% of restaurants place ads on the delivery platform today, so there should be upside there. Uber is also pursuing more ads on the mobility side, both in the app and on or inside drivers' vehicles. Digital ad businesses are usually high-margin, so that should also help drive Uber's profits going forward.
While Uber One and advertising are just two nearer-term opportunities, Uber has many more longer-term growth initiatives in the pipeline. These include an EV partnership with Hertz (HTZ 6.23%) to supply Uber drivers with 25,000 EVs in Europe by 2025, as well as the launch of Uber's first autonomous taxi service in Las Vegas through tech partner Motional. Uber also recently inked a 10-year deal with Motional to expand its autonomous service to more and more U.S. cities over time. Obviously, without drivers, an autonomous ride-hailing service would greatly expand Uber's margins.
Investors can take heart in the fact that Uber seems to be firing on all cylinders; and unlike most other tech companies, it's growing in a highly efficient, cost-conscious manner, thanks to its new leadership under Khosrowshahi.
