If you asked 10 different people what Uber Technologies (UBER -0.38%) does, all 10 would likely say Uber is in the "ride-hailing" business. They'd be right. For investors, though, there's an important footnote worth adding to this answer.
Although personal mobility currently makes up the biggest piece of the company's top and bottom lines, its delivery services unit is coming on strong. There's little doubt this arm is going to play an even bigger role in how the market values Uber stock in the foreseeable future.
Where Uber makes its money
They say a picture is worth a thousand words. So, let's start with a picture. The image below plots the comparative revenue growth of Uber Technologies' mobility (people), delivery (food and consumer goods), and freight businesses going back a few years. Ferrying people from point A to point B remains its biggest and fastest-growing unit, but delivery is holding up well and perked up a bit last quarter.
Data source: Uber Technologies. Figures are in millions.
The picture looks even prettier when you're talking about profits. While personal mobility still accounts for the lion's share of Uber's earnings before interest, taxes, depreciation, and amortization (EBITDA), on a percentage-growth basis, the company's delivery business is growing just as quickly, if not quicker.
Data source: Uber Technologies. Figures are in millions.
Don't misread the message. Now and for the foreseeable future, mobility remains Uber's breadwinning business. That's where the immediate focus should be. However, we're seeing clear signs that delivery is a key opportunity as well. Uber doesn't want to underinvest on this front.
Dissecting the delivery business
What's the delivery business in question? Ever heard of Uber Eats? That's a key part of it. Uber can help consumers order restaurant food online and then deliver that food to their home or office.
It's not just prepared food, though. The company operates a courier service as well. Uber is also able to pick up online orders at select non-food retail stores as well -- including grocery stores -- although that's a relatively new venture. This is also why there's so much of a growth opportunity ahead. In fact, the market researchers are IMARC Group believe the global same-day delivery business will expand at an average yearly rate of 17% through 2028. Straits Research suggests it's set to grow at an annualized pace of 21.3% through 2030.
This work, of course, is best handled by individual contract drivers rather than an organization with too much hierarchy and conventional employees. Uber is already the exact opposite of this cumbersome structure.
The good news is that Uber's management clearly understands how to best capitalize on the opportunity by capitalizing on its existing strengths. CEO Dara Khosrowshahi noted several times during the fourth-quarter earnings call held in early February that not only are more drivers handling both kinds of business, but more of its customers are using both kinds of services.
This greater volume of deliveries and riders makes the artificial intelligence-powered trip-routing and driver-management platform even more efficient.
Don't tarry
Uber stock was already a buy based on little more than its ride-hailing business alone. The stock has been performing well since late 2022, when it first became clear that the company would swing to a true profit sooner than later. Doing so in the middle of last year cemented that bullishness into place. That hasn't changed in the meantime.
What has changed is the depth of the bullish argument now that delivery is not only logging positive EBITDA results but growing them too. While Uber shares are priced frothily following their 200% run-up since the end of 2022 (and their 88% run-up to record highs just since October), there's yet more potential upside ahead. Delivery's sales and earnings growth is taking shape much faster than most people realize. Once the market starts seeing it, that could readily reignite the bullish flames.
This might help: Despite the recent rally, Uber shares are still trading well below analysts' consensus target of $87.26. A little more than 80% of these analysts also still rate Uber as a strong buy. They're likely eyeing Uber's delivery opportunity as well.
