What happened
Shares of Uber Technologies (UBER 2.36%) popped 20.7% this week, according to data from S&P Global Market Intelligence. The ride-hailing network and food delivery service posted strong growth and improved profitability in the first quarter, which had investors optimistic about the stock. As of this writing, shares of Uber stock are up 20.7% since last Friday's close and are up close to 50% year to date.
So what
In the first quarter, Uber's gross bookings -- or the total dollars spent across its services around the globe -- grew 19% year over year to $31.4 billion. This was driven by 40% growth in the company's ride-hailing segment, which is seeing a resurgence with the pandemic in the rearview mirror and the travel industry booming. Food delivery grew at a slower pace, posting 12% growth in the quarter. However, the segment is still significantly larger than just a few years ago, having 5x'ed its gross booking since before the pandemic.
Uber is also improving its profitability, with an operating loss of $262 million in the quarter compared to $482 million a year ago. Uber's profit margins -- while still negative -- have steadily improved over the last few years and it looks like the company will start generating a positive operating profit within the next few quarters. This is due to better expense management and laying off some of its huge employee base.
Advertising has been a promising endeavor for Uber that could start generating a meaningful amount of high-margin revenue within the next few years. Just a few years after launch, 345,000 merchants have now signed up for Uber's advertising services for food delivery.
Now what
With the stock up so much this year, Uber now trades at a market cap of $75 billion. The company is not yet profitable but has a huge market opportunity ahead of it as it tries to bring ride-hailing and food delivery to markets worldwide. If it continues to grow at a healthy double-digit rate and starts generating positive operating margins, the stock will likely do well for long-term shareholders.
Of course, one needs to be cautious when looking at Uber as an investment. The company has never made money and has an accumulated deficit of close to $33 billion. It looks to be on the right track, but buying shares in an unprofitable business is very risky compared to buying a steady, low-risk blue chip name.
