Uber (UBER +2.64%) just reported its financial results for the second quarter (ended June 30), and the market was pleased. The company beat Wall Street estimates for revenue and diluted earnings per share (EPS), sending the stock sharply higher immediately following the announcement.
Despite shares of this transportation-as-a-service company trading at a forward price-to-earnings (P/E) ratio of 30 (as of Aug. 7), you might be considering adding Uber to your portfolio. Before doing so, here are three things you should know about the business.
1. Incredible momentum
During the latest quarter, revenue jumped 16% year over year. This was driven by gross bookings rising 19% and the monthly active user (MAU) count up 14%. "The Uber consumer has never been stronger -- more people are using the platform, and more frequently, than ever before -- while drivers and couriers earned a new all-time high of $17.9 billion over the quarter," CEO Dara Khosrowshahi said in the press release.
The business is becoming more fiscally responsible, showing that it can leverage its cost base. Operating expenses increased 11%, much lower than the sales gain. Consequently, the operating margin expanded from just 3.5% in Q2 2023 to 7.4% in the latest period.
Uber's latest financial results continue the company's impressive momentum. Shares have soared 165% since the start of 2023, crushing the S&P 500 and the Nasdaq Composite Index. The market is clearly enthusiastic about this business and its prospects.
It's really not difficult to see why. All of Uber's key metrics, including revenue, operating income, gross bookings, and MAUs, are all significantly higher than they were in Q3 2019. The pandemic was a disruptor for many companies, but there were some that came out much stronger on the other end. Uber falls squarely into this category.
NYSE: UBER
Key Data Points
2. Competitive strength
With the rise of the internet, we've seen new types of so-called platform enterprises pop up. And these are some of the most successful businesses in the world. Think about Alphabet and Meta Platforms, for example. Or look at Airbnb and Etsy, which benefit from the power of global network effects.
Uber is slightly different. Its key competitive strength comes from localized network effects. If you lived in Denver, Colorado, the pool of drivers in Rome, Italy wouldn't help you at all. But in the markets Uber operates in, the more riders and drivers it has, the more valuable the platform becomes for all stakeholders. Having a first-mover advantage has helped Uber as well, making it extremely difficult for a new entrant to steal market share.
3. Autonomous future
There might be no bigger threat to Uber's long-term viability than the possibility that we will see fully autonomous vehicles one day. To be clear, I mean cars that don't even come equipped with a steering wheel, and ones that don't require their passengers to be alert.
The positive outlook is that this could benefit Uber. It's a leading ride-hailing app that consumers have built an affinity toward. And that's probably why Alphabet's Waymo partners with Uber.
On the other hand, what if Alphabet or Tesla one day launch their own ride-hailing service, completely bypassing Uber? As long as the technology works and is safe, I think these services could take off provided they offer rides at much lower costs than what Uber does now.
For what it's worth, we're probably still a long way off from this technology being available. And there will be regulatory and consumer-confidence hurdles as well that can delay mass adoption.
If you're considering buying Uber shares, you have now learned some valuable information about the business that can help you make a better decision.
