Uber earnings: Q4 ‘pretty good set of results’ amid ‘tricky operating environment,’ analyst says

Bernstein Research Analyst Nikhil Devnani joins Yahoo Finance Live to discuss quarterly earnings for Uber, consumer demand, consumer trends, investor sentiment, and the outlook for Uber in 2023.

Video Transcript

- Well, Uber shares are accelerating following a 49% boost to its fourth quarter revenue year over year. And Uber's CEO said despite some macroeconomic headwinds, he's more confident than ever following the results. Bernstein US Emerging Internet Research analyst Nikhil Devnani joins us now. So Nikhil, I first want to get your take on these results. A lot of people were wondering, will consumers start to fall off as we get into this post-pandemic recovery? Not the case, though.

NIKHIL DEVNANI: Yeah. First off, thank you for having me. I think what we saw from Uber today was a pretty good set of results, all things considered. It's a very tricky operating environment for a lot of these companies right now, but they continue to benefit from this shift from goods to services in consumer wallets.

And you know, what we see in the ride share side of the house, particularly, is that people are moving around again. Mobility services are in demand. Growth there looks to be quite healthy still. And importantly, too, is that the other side of the marketplace, which is the driver supply, which was such a big issue for a long time, that has also started to get better. And so that's also in a healthier position today, which is allowing them to meet the demand that's kind of sitting there.

And then I think, impressively, the delivery business, you know, what we saw was that, yes, it's slowing down-- again, if people are moving around, they're maybe not ordering home as much-- but it's hanging on better than people feared. And I think, you know, next to that kind of overall growth in the business, what they're doing is being a lot more disciplined on costs and managing expenses. And that's coming through in better margins for the business, as well.

- And we certainly saw that the mobility and the delivery business really driving a lot of the results, as well as the outlook, as well. Talk about the outlook and what you think is Uber's ability to really meet some of these growth projections it's looking at.

NIKHIL DEVNANI: Yeah, so what they told us that gross bookings, which is kind of the total transaction value of consumption on the platform, you know, that should be between $31 and $32 billion in Q1. Now that, again, I think is a little bit better than what folks were expecting. And really, core mobility or core ride share is driving the strength of that. They look to be in good shape to hit that. They were very close to that already in Q4.

And so what we're banking on is just a little bit more improvement in kind of usage on the mobility services. We need delivery to hang in there. And typically, as you get into Q1, seasonally, again, weather gets better and mobility trends improve. And that should help them kind of get there on the top line.

You know, keep in mind, for Uber, the bigger picture goal is also the investor day targets that they outlined back in February. Now, those feel a little bit ambitious on the top line, but what we're seeing is that, even though the growth might be a little bit tougher, particularly on delivery, relative to those initial guided expectations, the margin structure of the business continues to trend better than what they first expected. And that's really what investors are keyed in on right now.

- And we also saw the CEO highlighting this milestone, this new milestone, crossing 2 billion trips in a single quarter for the first time ever, an average of nearly 1 million trips per hour. How sustainable is this, though?

NIKHIL DEVNANI: Look, I think for now, what we see is that it is fairly sustainable. I think that you have to believe in kind of the secular underpinnings of this market, which we do. I think there is a natural tendency for consumers to use more convenience. When you look at the penetration rates that Uber has across its kind of core regions, what you see is that there's still a lot of habit building going on. Yes, these services have been around for a while, but weekly usage, monthly users of the platforms, there is still kind of room for that to go up.

And I think, again, back to the point I made earlier on drivers, if drivers keep coming back, what that naturally does is it brings prices down because there's more supply online. And it's nice, you know, in New York, I'm finally taking $15 Ubers around again. We haven't had that in a long time. In a world where inflation is surging and everything else is getting more expensive, it's really nice to have sort of the prices on these platforms get a little bit better. And if that keeps happening, then, in turn, it should drive a bit more on kind of engagement and habituation.

And then alongside that, they're also launching a bunch of new products. You may have tried, you know, the Share product, which is coming back, or the Uber Reserve product, where you book ahead of time. Consumers are really taking to these new service types or new mode types. And that's helping drive incremental trip demand, as well.

- And as you see perhaps more drivers incentivized to look at Uber versus Lyft, when you look at the range of businesses that Uber continues to expand in and bring on board, as well, how does that then compare to the Lyft story?

NIKHIL DEVNANI: I mean, that's the dream, right, is that you've got-- that's what makes a great internet business, is that you've got more than one offering. And in a business like this, you've got more than one offering to engage the consumer, but also to engage the driver, to give them more earnings opportunities, which in turn gets the whole flywheel going and makes it more economical for Uber. I think what we've seen so far is that it's definitely helping.

I think scale is part of it, but also having multiple earnings opportunities for drivers on delivery and mobility. It seems to be kicking in because what we're seeing now is that Uber continues to take share in a lot of its core regions in the mobility business. And I think that makes it tougher for Lyft to kind of operate as an isolated ride-share-only platform. And so I think what we would expect to see in kind of 2023 is stable to maybe some further share gains by the way of Uber.

- And is there any room for perhaps new entrants into this market or perhaps a different direction that Lyft could go in? I mean, do they have the cash available and the wherewithal to really make some moves in an Uber-like style?

NIKHIL DEVNANI: I think when you think about the threat of new entrants, you know, could someone come in, splurge a bunch of money, throw free rides at consumers and then take share, in theory, yes, and on paper, yes. But the reality is that we're probably in a new paradigm now for the market. I think the capacity for, you know, VC funds to back private ride share companies is less than what it used to be. The appetite for big tech to come in and splurge money on a space like this is not probably what it might have been several years ago.

And overall, I think it's just as the capital cycle has turned, as interest rates have gone up, I think the players that are existing today and have kind of defined the market today are going to be the players that we have going forward, as well. And then I think that applies to Lyft, as well. Do they have the capacity and appetite to spend a lot more on drivers or spend a lot more on getting consumers to come back?

Look, I think, again, they also have their own margin targets that they're trying to hit. And so I think their ability and capacity to overspend on growth is not what it used to be. And what we're hopeful for is that you've got two big players, and overall competition is starting to become more disciplined and more rational.

- I certainly appreciate you joining me this morning. Bernstein US Emerging Internet Research analyst Nikhil Devnani, thank you so much.