Uber Technologies (UBER -0.38%) has come full circle.
The ridesharing giant has undergone a stark transformation over the last few years, letting go of its desire to be the "Amazon of transportation" and instead focusing on its core strengths, jettisoning underperforming businesses and geographies. That includes pulling out of markets where it wasn't the No. 1 or No. 2 operator in ride-hailing.
Plus, it just announced it will close the alcohol delivery brand Drizly after acquiring it for $1.1 billion three years ago, absorbing alcohol delivery into Uber Eats.
Uber stock was essentially flat following the fourth-quarter earnings report on Wednesday, but the results show why the stock jumped 149% last year, and why more gains could be in store. The company reported its first year of profits according to generally accepted accounting principles (GAAP), showing off expanding margins and delivering solid revenue growth.
Gross bookings in the quarter were up 22% to $37.6 billion, and revenue rose 15% to $9.94 billion, which beat guidance at $9.76 billion. The improved revenue growth was a result in part from an accounting change in certain countries.
On the bottom line, the company continued to deliver impressive margin expansion as it built operating leverage. Operating income swung from a loss of $142 million to a profit of $652 million, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 93% to $1.28 billion.
On the bottom line, its GAAP profit per share improved from $0.29 to $0.66, easily beating the consensus at $0.17. CEO Dara Khosrowshahi said: "2023 was an inflection point for Uber, proving that we can continue to generate strong, profitable growth at scale. Our audiences are larger and more engaged than ever, with our platform powering an average of nearly 26 million daily trips last year."
Image source: Getty Images.
How Uber reinvented itself
Even before its initial public offering (IPO), Uber's competitive advantages were evident. The company had expanded around the globe, and its marketplace model was well-suited to high profit margins at scale.
However, at the time of the company's IPO, the business was plagued by years of mismanagement and bloat. Uber's reputation had suffered because of several missteps, including reports of a hostile workplace, poor treatment of drivers, and other mistakes.
The company was also bleeding cash in markets where it was uncompetitive and spending aggressively on marketing as well as driver and rider incentives in a scorched-earth approach that made the ride-hailing and food delivery industries a battle for market share and a pool of red ink on the bottom line.
Following the height of the COVID-19 pandemic, those industries consolidated and rationalized. Uber stepped back from its money-losing geographies and businesses and worked to better monetize its core business in ridesharing and food delivery.
As a result, Uber is finally fulfilling its earlier promise with profits surging, margins expanding, and revenue moving solidly upward.
Is Uber a buy?
Uber gained admission to the S&P 500 last year as it achieved GAAP profitability and the stock soared as it entered a new stage of profitability.
However, Uber's growth is far from over. Demand for its services should continue to grow as the company does more to build its membership through its Uber One loyalty program and other strategies, and as challenges from inflation and a weak consumer fade.
With its leadership in ridesharing and food delivery, Uber doesn't face a direct competitor that can match its reach or range of services, and that should help it maintain pricing power. While the stock isn't cheap, it trades at a reasonable valuation for a well-run company with a clear set of competitive advantages and a long-term growth opportunity.
Even after jumping 149% last year, Uber still has more room to run. It's not too late to bet on this hot transportation stock.
