Is Uber Technologies Stock a Buy Now?

Uber Technologies' (UBER -0.38%) stock dropped 6% on Aug. 1 after the mobility and delivery services provider posted a mixed second-quarter report. Its revenue rose 14% year over year to $9.2 billion, which missed analysts' estimates by $140 million, while its gross bookings grew 16% (18% in constant currency terms) to $33.6 billion.

On the bottom line, Uber posted a net profit of $394 million, compared to its net loss of $2.6 billion a year ago. Its earnings of $0.18 per share cleared the consensus forecast by $0.19 per share and marked its first profitable quarter on a generally accepted accounting principles (GAAP) basis. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also surged 152% to $916 million.

Image source: Uber.

Those headline numbers seemed solid, but Uber's shares had already doubled year to date ahead of that report. Should investors buy this stock after its post-earnings dip, or has too much growth already been baked into its valuation?

Reviewing the key numbers

During the second quarter, Uber's total number of monthly active platform consumers (MAPCs) increased 12% year over year to 137 million as its total number of trips rose 22% to 2.28 billion. But both of those growth rates cooled off from the first quarter and caused its gross bookings growth to decelerate.

Data source: Uber. YOY = year over year.

However, Uber expects that slowdown to end in the third quarter as its gross bookings rise 17%-20% year over year. It attributes that growth to its overseas expansion, its new mobility options for two-wheeler and three-wheeler vehicles, more delivery options for non-dining businesses, and the rollout of new services like Uber for Business and Uber Health. Its MAPCs are also using its app more frequently, even as inflation boosted the average prices of its rides and deliveries.

That pricing power is reflected in its take rates, or the percentage of each booking it retains as revenue. In the second quarter, Uber's mobility take rate rose year over year and sequentially while its delivery take rate grew year over year.

Data source: Uber.

Rising margins and cash flows

Uber's stable bookings growth, resilient pricing power, rising take rates, and cost-cutting measures all boosted its margins and free cash flow (FCF) in the second quarter. Its adjusted EBITDA margin (as a percentage of its gross bookings) more than doubled year over year to 2.7%, its FCF nearly tripled to $1.14 billion, and its GAAP operating margin improved from negative 8.8% to positive 3.5%. Those metrics included two milestones for Uber: the first time its quarterly FCF exceeded $1 billion and its first-ever GAAP operating profit. During the conference call, CEO Dara Khosrowshahi said there were "very few businesses that can deliver both strong growth at our scale and continue to expand margins."

For the third quarter, Uber expects to generate $975 million to $1.03 billion in adjusted EBITDA, which would represent 88%-99% year-over-year growth and equal an adjusted EBITDA margin (relative to gross bookings) of about 2.9%.

Is it the right time to buy Uber's stock?

For the full year, analysts expect Uber's revenue to jump 19% to $37.8 billion as its adjusted EBITDA surges 123% to $3.8 billion. Based on those estimates and its enterprise value of $98.3 billion, Uber's stock still looks reasonably valued at less than 3 times this year's sales and about 26 times this year's adjusted EBITDA.

By comparison, Lyft's (LYFT 1.87%) revenue is expected to only grow 5% to $4.3 billion this year, with a positive adjusted EBITDA of $172 million. Lyft's enterprise value of $3.8 billion values it at less than 1 times this year's sales and 22 times this year's adjusted EBITDA. It might seem cheaper than Uber, but there's a key difference: Lyft is expected to remain unprofitable by GAAP measures this year, while Uber is expected to squeeze out a slim GAAP profit of $640 million.

Uber's stock might have nearly doubled since the beginning of the year, but it's still only trading slightly above its 2019 IPO price of $45 a share. It's gone through some wild swings since its public debut, but its growth is stabilizing, its operating margins are improving, and economies of scale are kicking in as it pulls farther ahead of Lyft and its other rivals. In short, I believe it's still a great time for long-term investors to pick up more shares of Uber.