Technically speaking, Uber Technologies (UBER -0.38%) dished out disappointing third-quarter numbers. While profits rolled in better than some estimates (yet missed others), revenue of $9.3 billion fell short of the consensus for $9.5 billion.
Uber shares rallied anyway following Tuesday morning's release of its Q3 results, however, as investors were encouraged by the company's fiscal trajectory. Bookings were up 21% year over year. Revenue still grew 10% on a constant-currency basis. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) nearly doubled. Operating cash flow more than doubled. And, oh yeah, Uber's bottom line continues to swell following its second-quarter swing to a profit.
Investors should expect all of these growth trends to persist, too, for a trio of reasons.
1. Uber's market is growing as its customer base grows up
In the ride-hailing industry's infancy, it wasn't clear that enough consumers would be willing to get into a stranger's car. That worry's been decidedly laid to rest. During the three-month stretch ending in September, a record-breaking 142 million regular Uber riders collectively took over 2.4 billion trips, up 15% and 25%, respectively, year over year. It's safe to say that Uber's here to stay.
And this degree of consumer engagement is only set to keep growing, too, given the company's customer mix.
While Uber serves riders of all ages, it's the millennials -- people between the ages of 27 and 42 -- who absolutely love it the most. Data compiled by DemandSage suggests around 45% of Uber's customers are in this age bracket, with another 37% being even younger. They've all still got plenty of years' worth of mobility needs left to meet. In the meantime, as the biggest piece of its customer base ages and has kids of their own, more and more total consumers will be comfortable with the idea of regularly using ride-hailing apps. Indeed, anyone under the age of 16 right now won't even remember a time when ride-hailing wasn't a normal, common thing.
Underscoring this changing dynamic are numbers from the Federal Highway Administration indicating that, as of last year, only 25.3% of 16-year-olds living in the United States had a driver's license. That's down from 37% in 2000. The number of 19-year-olds in the U.S. with driver's licenses has fallen from 48% then to under 40% now. These stats suggest that teens increasingly just don't see the need to have their own car. If they need a ride, they'll simply hail one.
The bulk of Uber's business is done in the United States, by the way. But it's not a stretch to suggest the same trends are evident in Uber's important overseas markets.
2. Automobiles are becoming unaffordable for too many people
Even if these young adults wanted to drive themselves around it wouldn't necessarily be a feasible option for many of them.
It's not exactly a secret that sticker prices for automobiles are through the roof. Cox Automotive reports the average transaction price for a new vehicle sold in the United States in September was a whopping $47,899. That's down slightly from the all-time peak of $49,711 reached late last year, but only slightly.
Meanwhile, auto loan interest rates are also at levels not seen in over a decade, making already pricey cars even more expensive to buy.
The cost hikes don't end there, though. The American Automobile Association (which you know better as AAA) reports in its 2023 study of car ownership cost that the average annual cost of owning a car in the United States now stands at a record-breaking $12,182. Payments and financing still account for the bulk of these net costs. Insuring more expensive cars also means insurance premiums are higher, however, as are the costs of fuel and maintenance in this inflationary environment. Moreover, while it doesn't apply everywhere, car owners in more metropolitan areas must also pay a steep price just for parking their vehicles.
When you start crunching the numbers, using a ride-hailing service like Uber starts making more financial sense.
3. Personal mobility isn't even Uber's most resilient business
Last but not least, Uber Technologies is positioned for sustained growth not just because it's figured out how to cost-effectively move people around, but because it's also effectively leveraging its tech platform and drivers to deliver food and merchandise. Of last quarter's $9.2 billion in revenue, over $3 billion (33%) was driven by Uber's delivery services. Moreover, this segment's EBITDA soared from $99 million in the third quarter of 2022 to $329 million last quarter.
Data source: Uber Technologies. Chart by author. Figures are in millions.
Like its customer mix, Uber's mix of different kinds of profit centers matters simply because it offers the company a variety of ways to drive revenue in a variety of environments. While economic headwinds might dial back the amount of ride-hailing people do (although this doesn't appear to be a problem yet), Uber's delivery service is arguably more of a necessity and norm than it is a mere discretionary convenience. It's not as economically sensitive as you might suspect.
And once again it's young adults driving this surprising shift.
App business consultancy ironSource says millennials are 3 times more likely to order prepared food than their parents are, often because they're too busy to do their own shopping. They're also more likely to order using an app like Uber Eats since, after all, they're "digitally native" by virtue of growing up in a world where computers and mobile devices were the norm. This is also the same generation that saw the internet evolve into a shopping platform capable of delivering online orders by the next day, if not the same day.
Of course, these people are growing up and now having children of their own who are learning shopping habits from their parents. Door-drop delivery will be a norm.
Unanimous bullishness
These growth tailwinds aren't going unnoticed either. Market research outfit Technavio believes the ride-hailing market will grow at an average annual pace of nearly 13% through 2027, jibing with outlooks from Coherent Market Insights and Straits Research. Precedence Research estimates the global food delivery market will grow at a compound annual rate of more than 10% through 2032. The so-called "last mile" delivery market that overlaps with the merchandise sliver of Uber's delivery services is on pace to grow by more than 11% per year through 2031, according to Straits Research.
These are compelling forecasts to be sure.
Investment analysts' forecasts for Uber stock, however, are even more compelling. An incredible 41 of the 48 analysts covering this stock rate it as a strong buy; none of them call it anything worse than a hold. The consensus price target of $59.18 is also 18% above the stock's present price, although don't be surprised to see that average target inch higher if and when Uber shares start moving in that direction.
Bottom line? Uber Technologies has mastered this weird business model that clearly works. Don't overthink it.
