Uber (UBER -2.39%) recently reported mixed financial results for the three-month period that ended June 30. While revenue jumped 14% year over year to $9.2 billion, it missed the Wall Street consensus forecast by $100 million. However, the business posted diluted earnings per share of $0.18, a positive surprise that beat analysts' expectations for a $0.01-per-share loss.
As of Aug. 1, Uber shares are down 26% from their all-time high, which was set in February 2021. Regardless, I think it's a growth stock that investors should seriously consider adding to their portfolios. Let's take a closer look.
Impressive growth
One of the most important metrics to gauge the health of Uber's platform is gross bookings. This essentially measures the total dollar value of the rides and delivery orders that have happened on the platform during the period. Investors want to see this figure rise over time.
In the latest quarter, mobility gross bookings totaled $16.7 billion, and delivery gross bookings were $15.6 billion. While both numbers made double-digit gains from a year ago, mobility increased at a faster rate. This continues a trend following the pandemic, when delivery orders were a key driver for the business. Now that consumers are moving around more frequently again and spending less time at home, it's not surprising that mobility is outpacing delivery.
Uber had 137 million monthly active platform consumers as of June 30, up from 122 million a year ago. And the number of trips completed increased by 22%. The growth indicates that drivers and riders find value in Uber's platform. And as the company keeps getting bigger, Uber's network effects will start to become even more powerful, making it difficult for competitors to catch up.
Lyft, Uber's rival on the mobility side, has lagged far behind in terms of revenue growth in the last 12 months. And I think this demonstrates the winner-take-all dynamics of the industry. Uber has more drivers than Lyft, which makes riders want to use it more frequently. And because it has more riders, drivers naturally want to be available on the Uber platform. This separation could become even more pronounced in the years ahead.
Achieving profitability
Perhaps the most promising piece of information from Uber's latest financial update was that the business generated net income of $394 million during the quarter. In Q2 2022, Uber lost $2.6 billion, so that's a massive improvement.
Major expense categories -- including operations and support, sales and marketing, and general and administrative -- represented a smaller percentage of gross bookings, which helps explain why Uber swung to a profit.
But more importantly, research and development expenses during the quarter stayed constant at 1.5% of gross bookings. That's a good sign because it shows the management team isn't cutting spending on areas that can boost innovation down the line.
As I touched on above, Uber possesses network effects. And as businesses with this trait get larger, they start to achieve profitability gains that exceed revenue growth. That's because the technological infrastructure has been built out for the most part, and now the company can start to leverage its fixed costs better.
Just look at Airbnb, another top gig-economy enterprise that also has network effects. In 2022, it posted an impressive operating margin of 21%. I'm not saying that Uber can hit this figure anytime soon, but it gives you an idea of what the potential might be.
What's encouraging for shareholders is that Uber CEO Dara Khosrowshahi mentioned that positive net income should be the norm going forward. This is a critical data point to pay attention to.
Looking at the valuation
Despite being well off their peak price, Uber shares have nearly doubled through the first seven months of 2023. This compares quite favorably to the 37% gain of the Nasdaq Composite. Even with this monster recent outperformance, Uber's stock trades at a trailing price-to-sales multiple of 2.7. That's a substantial discount to the stock's trailing three-year average of 4.6.
Without a doubt, Uber is a huge part of the daily lives of millions of consumers across the world. And it's hard to think that this won't be even more true a decade from now. Therefore, the current valuation presents a good opportunity to consider taking a closer look at buying the stock right now.
