Uber riding higher as Omicron-related headwinds move to rearview mirror

Heading into Uber’s (UBER 37.75, -2.44, -6.1%) 4Q21 earnings report, investors were already bracing for an Omicron-related downturn in its Mobility segment following the downside 1Q22 guidance offered by Lyft (LYFT) the night before. As expected, COVID-19 did impact UBER’s ride-share business, but not enough to prevent it from easily beating revenue and adjusted EBITDA expectations. Since the surge in new virus cases peaked in late December and into January, the main concern centered on UBER’s guidance.

Like LYFT, the company provided 1Q22 guidance that fell short of analysts’ expectations. However, UBER’s adjusted EBITDA projection of $100-130 mln equates to sequential growth of 33% at the midpoint, blowing away LYFT’s forecast for adjusted EBITDA to plunge to $5-10 mln from $74.7 mln in Q4. The divergence is quite remarkable given that LYFT has consistently outperformed its larger rival on this metric, owning to its simpler business structure and its deep cost-cutting efforts.

A few key factors are underlying UBER’s relative outperformance and brighter outlook, including:

Once viewed as a hindrance, UBER’s more diverse business is now paying dividends. Most notably, after years of unprofitability, the Delivery segment generated positive adjusted EBITDA for the first time.

From a gross bookings standpoint, Delivery has always acted as a buffer when rising virus cases have derailed the Mobility segment. That remains true today, as Q4 Delivery gross bookings jumped by 34% to $13.4 bln, despite lapping incredible growth of 130% in the year-earlier period.

While Delivery’s gross bookings growth has been astonishing, many have questioned whether the food delivery business can be profitable due to fierce competition and low margins. UBER proved the doubters wrong in Q4, as the segment posted adjusted EBITDA of $25 mln compared to $(145) mln a year earlier, bolstered by a 4.5 percentage point improvement in take rate to 18.0%.

Uber Eats is by far the largest bookings contributor to Delivery, but new verticals – grocery, alcohol, convenience stores – are growing quickly. Combined, these verticals grew by 10% on a qtr/qtr basis.
Based upon UBER’s upbeat commentary regarding the recent recovery in its ride-share business, it seems that its turnaround is tracking ahead of LYFT’s. CEO Dara Khosrowshahi commented that Mobility has rapidly recovered, with gross bookings up 25% on a month-to-month basis in the last week.

Adding some credence to this assertion is that LYFT’s Q1 revenue guidance was about 16% below expectations (at the midpoint) while UBER’s gross bookings guidance of $25-26 bln was only about 6% below expectations. A caveat is that LYFT does have a propensity for issuing conservative guidance.
Both UBER and LYFT are experiencing a rebound in airport rides. However, UBER noted that these highly profitable rides have tripled while LYFT noted a doubling in airport rides.

The promising news for both companies is that the driver shortages that beset the ride-share market last year are now easing. With COVID-19 restrictions also easing, the stage looks set for a strong rebound this spring for UBER and LYFT.

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