Does Lyft in the United States "beat" Uber in the "Small is Beautiful" approach?

On the morning of February 8th, before the opening of the US stock market, Uber, the leader of shared travel, released its Q4 2022 financial report. Overall, the company's revenue performance was stable and there were no big surprises, but its cost control and profit were consistently better than expected, with the following key points:

1. No signs of consumer spending decline: The core GTV amount for the company's taxi and food delivery business this quarter was 29.2 billion, slightly higher than the market's expected 28.9 billion, an increase of 18% year-on-year, a slight slowdown from the 21% growth rate in Q3.

This is different from the widespread deceleration and decline in growth demonstrated by various cloud computing companies, and compared to Q3, "Uber's GTV growth aimed at consumer service consumption did not significantly slow down." Furthermore, the guidance for Q1 of this year implies a median GTV growth rate of 19%, consistent with this quarter's growth rate. Like Amazon's retail business, it also points to no signs of decline in consumer spending.

1. Revenue is average, but profit exceeds expectations: Overall, Uber's total revenue this quarter was $8.6 billion, exactly in line with market expectations. However, due to decreased international freight demands, the company's freight revenue was 18% lower than expected, and "the actual revenue of the taxi and food delivery business that the market really cares about is about 4% to 5% as expected." In terms of profit, the key figure the market is tracking, adjusted EBITDA profit (including stock option incentives and some expense provisions), is $670 million this quarter, exceeding market expectations of $620 million and the company's guidance range of $600-630 million for the upper limit. The mid-point guidance for Q1 is $680 million, also well above market expectations of $600 million.

Therefore, although the company's topline growth has entered a bottleneck period (stabilizing), it cannot become a bright spot to attract the market. The steady improvement in profit releasing and continued exceeding expectations for investment will become the company's mainstay in 2023.

1. The dividend from the average ticket price ends and future growth will return to being driven by quantity: During the pandemic, due to rising oil prices, overall inflation and a shortage of capacity, the continuous rise in average ticket prices became the main driver of the company's GTV growth. However, with falling oil prices and the recovery of capacity supply, the average ticket price this quarter was 1% lower year-on-year. As the downward trend of inflation is likely to continue, the average ticket price may become a drag on growth within 2023 with the volume becoming the driving force (which may not be enough).

2. Strong cost control and improvement in food delivery monetization rate helped exceed profit expectations: Unlike big companies such as Amazon, Microsoft, and Google, which overexpanded during the pandemic, Dolphin Analyst covered emerging industry giants (including Uber and Airbnb) that sharply reduced personnel during the pandemic to alleviate cost pressures. As a result, while the company's revenue and gross profit both grew at a double-digit rate, Uber's various operating expenses decreased sequentially instead. The total operating expense decreased from $3.66 billion to $3.44 billion for this quarter. At the same time, after experiencing a rapid increase in volume during the pandemic, the food delivery business has now entered the stage of improving commercial monetization. Actual monetization rate has reached 15.7%, a 0.4pct increase from the previous quarter.

Dolphin Analyst's point of view: From the perspective of expectation difference, Uber's financial report for this quarter exceeded expectations in terms of revenue growth and profit release in its core ride-hailing and food delivery businesses, which will drive the stock price to rise slightly.

However, beyond the expectation difference, from a mid-term perspective, Dolphin believes that Uber has already fully passed through the trough caused by the epidemic and the subsequent rapid recovery period on the revenue side, and will return to the steady growth center driven by volume in the future.

At the same time, Dolphin increasingly believes that for consumer-facing internet companies in the current cycle, compared to enterprise-oriented internet companies, they will enter a relatively advantageous stage. Compared with companies with massive layoffs and continuous expense reduction, consumer spending may be more resilient within 2023, therefore Uber's revenue growth may not slow down significantly anymore.

Meanwhile, due to the company's proved and extremely strong cost-control ability, Dolphin expects that Uber will have outstanding performance in both its topline and bottomline within 2023.

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1. No decline? Growth of Ride-Hailing & Food Delivery is stabilizing

First of all, Uber's core business -- ride-hailing (Mobility) segment has realized an order amount of 14.89 billion US dollars in the fourth quarter, which is basically in line with market expectations. Although the growth rate in this quarter further slowed down to 31.3% after the disappearance of low base, which is slightly higher than the fluctuations caused by the epidemic, it has increased by about 10% compared with the same period in 2019 under normal circumstances, and is still steadily increasing. It can be seen that Uber ride-hailing has completed the trough caused by the epidemic and the period of strong rebound, and has returned to the steady growth trend.

Similar to the ride-hailing segment, Uber's food delivery business (Delivery) has also completed the rapid growth caused by the epidemic and the rapid slowdown, and the growth rate has entered a stable range. It has achieved a food delivery order amount of 14.3 billion yuan this quarter, which is also in line with market expectations. The YoY growth rate has slightly declined to 6.5%, and has remained at 6% to 7% for three consecutive quarters.

After consolidating the takeaway and ride-hailing businesses, the core order amount for this quarter was 29.2 billion U.S. dollars. As both the ride-hailing and takeaway sectors stabilized and were consistent with expectations, the core order amount was also as expected.

From a price-volume decomposition perspective, from the perspective of price, as oil prices fell and US inflation gradually declined, the company's average core order price has fallen by 0.9% compared to the same period last year. As the above trend is likely to continue for some time, the average price per customer for the company may continue to fall within 2023, which will have an adverse effect on the revenue and profit of the company.

Since price factors are likely to be a drag in 2023, this year's growth will have to be driven entirely by volume. The bad news is that since 1Q22, the growth rate of the company's core orders compared to the same period in 2019 has remained at around 10% to 12% for four consecutive quarters, and the order growth rate seems to have entered a plateau phase. But based on the company's performance and macroeconomic indicators, the good news is that US residents' spending on goods and services is not slowing down further, or showing signs of recession. The growth rates in the third and fourth quarters are basically the same. That is, in 2023, the growth of Uber's core order amount is likely to be relatively stable.

From the perspective of user numbers and order frequency, both factors are steadily improving. Among them, the monthly active users who have used ride-hailing or takeaway services on the Uber platform reached 130 million, an increase of 18% compared to the same period in 2019. And the average number of orders per person this quarter was 16.1 times, which is still 6.5% lower than the frequency in the same period in 2019, but the gap is narrowing every quarter.

Dolphin Analyst believes that since the company basically only had a core business of ride-hailing before the epidemic, and if the scale of the company's takeaway is already as large as ride-hailing, the order frequency of the company's monthly active users will continue to increase and surpass the pre-epidemic level.

二、Upgrading Food Delivery Business, While Trend of Monetizing Ride-hailing is Declining

Due to Uber's commercial model shifting from platform type to self-operated mode in regions such as the UK and Canada, part of the company's confirmed revenue changed from net commission to total payment amount, resulting in an amplification of revenue. Therefore, in the following section, Dolphin Analyst focuses on the performance excluding the impact of accounting changes.

Specifically, the revenue of the ride-hailing business this quarter was $4.1 billion, slightly higher than the market expectation of $3.9 billion. After excluding the impact of the commercial model change, the comparable growth rate was 30%, which was basically the same as that of the previous quarter, but slightly lower than the growth rate of order volume. It can be seen that after excluding the impact of the commercial model change, the monetization rate of ride-hailing business has slightly declined from 19.9% in the previous quarter to 19.7% in this quarter. Dolphin Analyst believes that the decrease in monetization rate may be due to the drop in unit price caused by the fall in oil prices and the driver incentives provided by the company to compete for driver supply. Looking at the longer trend, the actual monetization rate of ride-hailing business has been trended downward.

In contrast to the ride-hailing business which has continuously declining monetization rate, food delivery business has entered the stage of improving commercial monetization after experiencing a rapid rise during the epidemic. The confirmed revenue of the food delivery business this quarter was $2.77 billion, a year-on-year increase of 24%. After excluding the impact of model changes, the comparable revenue was $2.93 billion, slightly higher than the market expectation of $2.8 billion. After excluding the influence of the model, the year-on-year growth rate still reached 20%, significantly higher than the single-digit growth rate of the food delivery order volume. The actual monetization rate has reached 15.7%, which has continued to increase by 0.4 percentage points from the previous quarter.

三、Steady Revenue Performance without Surprises

In addition to the ride-hailing and food delivery businesses, Uber's freight business achieved a revenue of 1.54 billion yuan this quarter. Due to the fact that last year's acquisition of Transplace had basically passed, the year-on-year growth rate this quarter has rapidly slowed down, and the actual income was about 18% lower than the market expectation. The degree of weakness in international logistics is significantly higher than that in the company's personal business.

After totaling all businesses, Uber's total revenue for this quarter was US$8.6 billion. Due to the drag of the freight business, the total revenue was roughly in line with market expectations, however the actual revenue of the ride-hailing and food delivery business, which the market really cares about, exceeded expectations.

In terms of regional revenue, the North American region contributed nearly 60% of the company's revenue and is still the company's main market. In addition, the market size of Europe and the Middle East (EMEA) is growing rapidly, accounting for more than 24% of the total revenue. In terms of year-on-year growth rate (due to changes in business models and acquisitions, the absolute value of growth rates is meaningless, the trend of growth rate changes is the main focus), the previously leading recovery Americ region (including South and North) The growth rate slowed to the range of 30% to 40%. The growth rate of Europe and the Asia-Pacific region began to rebound. Dolphin Analyst believes that in the second half of this year, with Japan, Southeast Asia, Singapore and other countries gradually relaxing border controls, the Asia-Pacific region will still see high growth in 2023.

This quarter achieved a gross profit of US$3.3 billion, but it was lower than market expectations of US$3.45 billion, indicating that the degree of company gross margin improvement was not as expected by the market. Due to changes in revenue calculation methods, we observe the changes in gross profit margins from a more stable and comparable perspective of gross profit/total order amount. Compared with the previous quarter, it dropped slightly by 0.2pct, but excluding seasonal effects, the company's gross profit margin was basically stable.

Fourth, there were no surprises in the growth, but the focus is on insane profitability

Although the total order amount, revenue, and gross profit of the company were in line with expectations this quarter and there were no bright spots, the trend has entered a "dead water" platform period. However, the company has still achieved good results in efficiency improvement, cost control, and profit release. The company's overall operating losses in this quarter have been significantly reduced to only US$140 million, and even without adjusting for equity incentives and other expenses, the company's reversal from loss to profit is only a small step away.

If we exclude approximately US$480 million in equity incentive expenses, and legal, tax, regulatory, and other provisions, Uber has achieved operating profits of US$440 million this quarter under Non-GAAP adjustments, and their profit margins continue to improve.

The reason behind this is that unlike large companies such as Amazon, Microsoft, and Google, which excessively expanded during the epidemic, the small giants in niche markets (including Uber and Airbnb) covered by Dolphin reduced their workforce significantly during the pandemic to alleviate cost pressure. From the table, it can be seen that while the company's revenue and gross profit both experienced double-digit growth, Uber's various operating expenses decreased on a month-on-month basis, with total operating expenses decreasing from 36.6 billion yuan in the previous quarter to 34.4 billion yuan in this quarter. Of these, the management expense had the largest decrease, with the expense rate against gross profit decreasing from 29% directly to 23%. It can be seen that the company has significantly compressed its internal expenses.

V. Better-than-expected Profitability of Meal Delivery Business

Looking at the EBITDA, after excluding equity incentives and a series of accrual fees, the company's overall adj. EBITDA reached 670 million US dollars, exceeding the market's expected 620 million and the company's guideline 600-630 million upper limit. In terms of individual departments, the main source of the unexpected results is still in the meal delivery business:

1. The Adj. EBITDA of the ride-hailing business exceeded 1 billion US dollars, slightly higher than the market's expected 990 million.

2. The meal delivery business achieved Adj. EBITDA of 240 million, far exceeding the market's expected 180 million, and the Adj EBITDA profit margin was 8.2%, far higher than the market's expected 6.6%.

3. As for the freight business, after breaking even in 2022, it has been hovering on the edge of profit and loss in the next two quarters (including this quarter), that is, it neither makes money nor loses money, and has no impact on the company's overall profitability.

Dolphin's previous Uber research:

November 2, 2022 conference call "Uber believes that travel demand remains strong, and the focus in the future is on improving user stickiness and habits (3Q22 conference call minutes)."

November 2, 2022 financial report review "Can Uber make money without growth, and the market still pays?". 2022 November 21st "What is Uber's Future after Experiencing the 'Ups and Downs' of the Epidemic?"

2022 October 14th "Through the Epidemic and Inflation, the Killer Move behind Uber's Good Fortune"

Risk Disclosure and Statement for this Article: Dolphin Analyst's Disclaimer and General Disclosure