Uber Q1 Earnings: Be Wary Of Chasing The Irresistible Pop

Uber Technologies, Inc. (NYSE:UBER) posted another incredible turnaround as investors cheered its FQ1'23 earnings release with a nearly 10% spike at writing.

We previously cautioned investors about joining the previous post-earnings spike in early February, when Uber delivered a robust FQ4'22 earnings report. We urged investors to wait patiently for a pullback and not get too excited, joining the momentum buyers who jumped in.

Accordingly, UBER stock fell more than 20% toward its April lows (presenting dip buyers an opportunity), even though today's surge has brought the stock much closer to its February highs.

As such, should investors who missed buying its recent lows last week follow the momentum surge for its earnings release today? Probably not.

Uber posted a solid release, with revenue up 29% YoY, outperforming Wall Street estimates. In addition, its adjusted EBITDA of $761M also came way ahead of the consensus estimates, suggesting Uber is likely on track to meet its FY23 outlook.

Note that Uber is "expected to progress towards GAAP profitability by 2024." As such, the significant outperformance has likely reduced its execution risks for H2FY2023, even as the macroeconomic risks could intensify.

We assessed that the recovery in Uber's mobility segment improved the company's ability to gain further momentum, even as gross bookings growth in its delivery segment remains tepid.

Accordingly, Uber posted gross bookings growth of 40% for its mobility segment in FQ1, compared to delivery's 8% uptick. Moreover, its take rate of 28.9% for mobility demonstrated that Uber's take rate recovery remains on track, following last quarter's 27.8% metric.

Management credited the improvement in its take rate to the "combination of decreasing incentives and a healthier [driver] supply perspective." Therefore, the economics are getting increasingly positive for Uber, suggesting that its network effect is helping to attract driver partners.

Investors should consider Uber's ability to continue raising its take rates, as it's critical to help the company move faster toward its profitability goals. Morningstar also highlighted that Uber is "likely to demand higher take rates."

Hence, Uber must continue to generate more value for its customers and driver partners over time with value-adding initiatives. Management accentuated that Uber is leveraging AI to drive user experiences with "surprise and delight" and accelerate product development, bolstering its network moat.

In addition, its "structural advantage in the delivery business" should continue to underpin its ability to cross-sell through its segments while also attracting advertisers to come on board.

Management reminded investors that Uber's "advertising product is also growing at high rates," as advertisers can leverage the platform's proprietary data, entrenching Uber's moat further.

Uber Technologies, Inc.'s valuation is likely fairly valued, as seen in the C- grade given by Seeking Alpha Quant. As such, UBER doesn't seem to be overpriced despite today's surge to justify its growth premium.

Furthermore, Uber's ability to post robust earnings reports over the past two quarters has bolstered management's credibility as it continues to track its target of $5B in adjusted EBITDA in FY24.

Management assured investors that Uber "aims to expand profitability again in Q2," giving investors more confidence that Uber could exceed $2B in free cash flow or FCF in FY23.

With the surge, UBER is nearly back to re-testing its February highs, which could draw sellers who bought the recent dips to take profit/cut exposure.

However, we gleaned that UBER is no longer in a medium-term downtrend. As such, Uber Technologies, Inc. bottoms in June through December look robust and should hold. Bottom-fishers who added through those lows should continue holding their positions as UBER's buying sentiments have improved remarkably.

However, the margin of safety for adding Uber Technologies, Inc. stock isn't attractive now if you missed its recent lows. Therefore, we urge investors to wait for its next pullback and not join the buying surge.

Rating: Hold (Reiterated).

Important note: Investors are reminded to do their own due diligence and not rely on the information provided as financial advice. The rating is also not intended to time a specific entry/exit at the point of writing unless otherwise specified.

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