UBER Technologies, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Uber Technologies, Inc. is a technology platform that offers a range of transportation services across ride sharing and delivery including food and freight.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Uber’s business model operates on a platform connecting independent drivers and couriers with customers needing transportation or delivery. This model, while revolutionary in its inception, has faced increasing competition from similar platforms and existing transportation services, which has challenged its profitability.

Uber segments its business into four main categories: Mobility, Delivery, Freight, and All Other.

Mobility: This segment includes ride-hailing services for passengers, with operations spanning several countries. It accounts for the majority of Uber’s revenues but is fiercely competitive.
Delivery: This includes food delivery, groceries, and other items via Uber Eats and has benefited significantly from pandemic related changes in consumer behavior. It has seen solid growth due to these changes.
Freight: This segment connects shippers with freight carriers using Uber’s technology. This area has experienced growth that mirrors the company’s core business.
All Other: This segment includes operations that are not included into other categories, namely its ATG business which sold in 2021, Jump.

The mobility business is highly competitive with numerous ride-hailing and transportation options available, and this is where Uber has invested a large portion of its resources. However, delivery has been a growth area.

Uber’s long-term strategy revolves around expanding its core platform through geographic and product diversification. It has taken steps to expand into new territories, and also, in areas such as autonomous driving, grocery delivery, and freight. This requires large amounts of investments into research and development and new acquisitions.

Financial Analysis

Uber’s financials are complex and demonstrate a mixed performance profile.

Looking at UBERs reported numbers, revenue for the year 2023 was $37.281 billion a jump from the 2021 revenues of $17.455B. However, it has shown a loss of nearly 1 billion, a slight recovery from 2021 losses of about 7 billion. The company has improved its profitability in Mobility and Delivery segments since the start of 2022 and their adjusted EBIDTA is up as well.

While Uber has shown good top line growth, profits have remained elusive, as they are dependent on factors largely out of the company’s control. In essence, its revenue is driven by a combination of commissions or fees taken from its services, its sales is directly linked to its number of users, prices charged, and the extent of its operational presence. Cost is impacted by operational costs like employee compensations, legal, insurance, etc. and also on variable costs, like marketing expenses and fuel costs.

A large part of Uber’s costs is also allocated towards R&D and innovation. In 2023 it had spent about $3 billion on research and development. Uber needs to invest heavily to maintain its technological edge and also to stay competitive.

In 2023, the cash and cash equivalents was at around $3.46 billion at the end of the year compared with roughly $4.209 Billion the year prior. But this amount is offset by $12.391 billion worth of operating and other long term liabilities, of which about $4.7 Billion is short term loans and revolving credit arrangements.

The net loss was roughly $8.8 billion in 2020. The company’s operations have improved since then and reported a net income of $2.32 Billion in 2022, a big reversal from prior years. In terms of Free cash flow, the company reported a $303 million flow compared with the prior years’ losses. However, their 2023 results again reverted to a loss.

Moat Assessment: 2/5

Uber has a narrow but limited moat. Here’s the breakdown:

Network Effects (Moderate Strength): The core strength of Uber lies in its network effect, which is most strongly evident in its ride-hailing business. The more drivers on the platform, the better the service for riders, and vice versa. Uber’s success attracts both riders and drivers, establishing a virtuous loop. This is visible in Uber’s dominance in the ride sharing space. However, this moat is not particularly unique as it faces many competitors which do not have strong barriers to entry. In addition, there can be multiple players in the same market.
Customer Switching Costs (Low Strength): While Uber attempts to offer a unique experience for its users, the switching costs are relatively low. There is very little loyalty for ride sharing services, it’s easy for customers to switch to another competing service. Loyalty programs are not particularly effective at keeping them on the platform.
Brand (Weak): While Uber has global brand recognition, it lacks strong customer loyalty. Brands in the mobility business have often failed to create a sustainable moat.

Overall, these factors give Uber a limited moat. It does provide some protection, but the underlying structure of the industry makes this hard to be a strong moat. Also, the level of dependence on financial incentives to keep both drivers and riders using the platform makes it vulnerable to a negative chain of events.

Risks to the Moat

Uber’s moat is susceptible to several risks:

Competition: There are many local, regional and global companies offering similar ride-hailing and delivery services. All such competitors try to undercut each other by offering promotional prices and lower fees, creating huge pricing competition. Any successful competitor could severely harm the company’s pricing power and profits. In addition, they have also had many difficulties in entering new markets.
Regulation: Stricter regulatory scrutiny can be a huge problem for Uber. Regulations can affect how Uber can hire drivers, or restrict their ability to operate in certain cities. Governments often impose price caps, which can have a major effect on profitability. Also, any future regulations could put more liability on Uber itself, impacting their finances and profitability.
Technological Changes: Rapid advances in areas like autonomous driving may render the current platform-based business model redundant. It also needs to invest in other areas like delivery and freight to become a long term sustainable business. The reliance on a single or two product lines would make the business more fragile and vulnerable.

Business Resilience While the above risks are real, Uber has shown an inherent business resilience due to its scale and platform. The company has a demonstrated ability to navigate through financial and competitive pressures and to make necessary adjustments, when needed. The large reach of Uber helps insulate it from localized problems, and allows it to diversify its resources and operations. Its technology is another plus point that gives it an edge over the smaller, less funded players in the industry.

Understandability: 3/5

The business model of Uber is relatively straightforward, as it is a platform that connects riders and drivers using a mobile application. But the complexities of the business emerge from various aspects of the market:

Complex Operations: Despite the simple idea, the operational side involves complex algorithms, management and monitoring of millions of riders and drivers, regulations, liability, and many other moving pieces.
Geographic Variations: It also operates in many cities across the globe which have their own regulatory structures and economic conditions, making profitability difficult to understand at a glance.
Competition and Financials: It is also quite difficult to see when the business has a strong competitive advantage, because similar competing services provide almost the same experience, creating high levels of pricing pressure. The financials, especially, are also quite complicated to understand, even for experienced analysts due to a large presence of impairments, non-cash earnings and several other factors that obfuscate them.

All things considered, while we may easily understand its business model, it takes a lot of work to understand the company’s potential for sustained value.

Balance Sheet Health: 4/5 Uber’s Balance Sheet is overall healthy with a high liquidity position. As per their 2023 report: - A decent 3.5 billion worth of cash and cash equivalents. This is also balanced by $12.4 Billion worth of debt and debt equivalents. - Current assets are at $13.3 billion while current liabilities are at $10.9 billion. - A large portion of its long term assets are the goodwill and intangible assets, this makes the company a bit vulnerable to write-offs. Overall, given its cash pile, and its financial profile and current operations, we would rate its health as moderately healthy.

Recent Concerns/Controversies/Problems - Uber’s main focus in the past few years has been profitability, and that is the reason why they have made a series of changes in their operations. They have been focusing on increasing efficiency, cutting out loss-making operations, and generating cash from the business, instead of just burning money. - Regulatory hurdles still remain in multiple jurisdictions and has been a major problem for the company’s progress and business viability. - There is still the risk from technological disruption to their businesses as autonomous driving technologies gain traction, and it’s hard to say whether Uber would have an edge in these emerging technologies. - Uber’s drivers are classified as independent contractors and this may become a legal issue in some areas. - They have also faced issues in Europe and Asia around its pricing and business models. The profitability in most of those areas is either non-existent or very low. - There is always the risk that competitors in areas like Delivery and Mobility will have a very good run and squeeze out Uber from its current dominant position.