Uber: FSD in a state of alarm, minor violations may lead to severe penalties?

On the evening of February 5th, before the US stock market opened, $Uber Tech(UBER.US) announced its Q4 2024 financial report. The performance of the report was not bad, with both highlights and flaws, but the weak guidance for the next quarter is a bigger issue. The key points are as follows:

1. The most critical order amount indicator (Gross booking) performed well this season. The Mobility business saw an order amount increase of 18.2% year-on-year, significantly higher than last quarter's 17.3% and the market expectation of 16.8%. After excluding the impact of exchange rates, the comparable growth rate was 24%, consistent with last quarter.

Although the nominal growth improvement is mainly attributed to the reduced impact of exchange rates, the key concern is that the sustained slowdown in the growth of the Mobility business after last quarter's financial report is one of the market's biggest worries. This performance at least indicates that the slowdown in growth has not continued to worsen as feared.

2. The other pillar, the delivery business, saw an order amount increase of about 18% year-on-year this season, accelerating by about 2.3 percentage points compared to last quarter, and significantly higher than the market expectation of 15.8%. Even after excluding the favorable exchange rate impact, the growth rate under constant exchange rates also increased by 1 percentage point. The growth is unexpectedly strong.

3. The growth of both the Mobility and delivery businesses improved year-on-year, clearly indicating a good performance. Moreover, driven by price and volume, the year-on-year growth rate of order volume, which is not affected by exchange rates, improved from 17% to 18%, higher than the market expectation of 16%. This reflects that the improvement in growth this season is not solely due to exchange rate effects; it is a real improvement at the business level (mainly in the delivery business).

4. From a revenue perspective, although the Gross booking growth rate of the ride-hailing business improved, the take rate slightly decreased from 30.5% to 30.3% quarter-on-quarter, leading to a revenue growth rate decline from 26% last quarter to 25%. The decline in the profit margin of the Mobility business is also likely affected by the decrease in the take rate. This is one of the flaws.

On the other hand, the delivery business saw a quarter-on-quarter increase in the monetization rate by 0.1 percentage points, resulting in a year-on-year revenue growth rate of 21%, significantly accelerating and greatly exceeding the market expectation of 17.5%. The increase in high-margin advertising monetization should be one of the main contributors.

5. Another flaw is that, in terms of profit, the market mainly focuses on the adjusted EBITDA indicator, which was 1.84 billion this season, with a year-on-year increase of 44%. However, it was slightly lower than expected by about 0.02 billion. Although the difference is very small, it is indeed a miss. Looking at the segments, the main drag was the Mobility business, with its adjusted EBITDA as a percentage of Gross booking profit margin at 7.8%, lower than market expectations and last quarter's 8%. Combined with the previously mentioned decline in the monetization rate of the ride-hailing business and the significant increase in marketing expenses, the market may interpret the decline in the profit margin of the ride-hailing business as a deterioration in the competitive landscape under the impact of competitors, including autonomous driving.**

The food delivery business, on the other hand, benefited from higher-than-expected order growth and an improved monetization rate, with adj.EBITDA of approximately $730 million, about 6% higher than expected, and the profit margin as a percentage of gross bookings also increased by about 0.2 percentage points, offsetting most of the impact from the ride-hailing business, resulting in a limited overall difference in the company's profits compared to expectations.

6. The biggest issue is that, looking ahead to the first quarter of the new year, the company's guidance for the median total order amount is $42.75 billion, lower than the expected average of $43.4 billion. The median guidance corresponds to a year-on-year growth rate of 13.5%, significantly lower than the expected 15.3%. Although excluding the impact of exchange rates, the company's expected order growth rate is between 17% and 21%, which is not bad compared to Morgan Stanley's expectation of 18.2%, but as an international company with a high proportion of overseas business, the impact of exchange rates is a necessary cost to bear while enjoying multiple markets.

From a profit perspective, the median adj.EBITDA guidance is between $1.83 billion, slightly lower than the expected $1.85 billion. However, the actual profit margin in the guidance and market expectations is around 4.3%, with little difference, mainly dragged down by the lower-than-expected order amount.

Dolphin Investment Research Perspective:

As a previous "top student" in the U.S. stock market, and still a favored stock ranking high on many investment banks' Top Buy lists, one of the main reasons for its poor performance recently is that with the rapid development of autonomous driving technology led by Tesla, a "Sword of Damocles" has been hung over Uber's core competitive barriers and long-term growth prospects, which cannot be immediately verified or falsified.

Beyond this difficult "soul question," the market's other two major concerns include: 1) Whether the ride-hailing business, which has seen slowed growth in recent quarters, can stabilize or will continue to deteriorate; and 2) Whether the company can continue to deliver an adjusted EBITDA compound growth rate of around 30% over the next three years as previously guided, i.e., whether the narrative of rapid profit expansion can continue.

From this performance perspective, the quarter-on-quarter improvement in order growth clearly alleviates concerns about the first issue regarding sustained and rapid growth slowdown. As for the second issue, the nearly negligible miss in adjusted EBITDA compared to market expectations, along with a still impressive growth rate of 44%, cannot be said to truly shake the outlook for the company's profit growth over the next three years However, under the threat of autonomous driving to core investment logic and the current valuation of over 20x PE for 2026, the market has been quite harsh on Uber. The market has always placed more emphasis on future guidance rather than the current quarter's performance. To some extent, the market has fallen into an "endless worry" where, regardless of how this quarter performs, there is no guarantee that the next quarter won't worsen. As the long-term outlook remains unclear, the "nitpicking" of short-term performance may have become the new "consensus" and choice of the market.

The following is a detailed interpretation of this quarter's financial report:

1. Both ride-hailing and food delivery growth have improved, and concerns about continued slowdown have not materialized

The key metric of gross bookings actually performed relatively well this quarter. The Mobility business saw a year-on-year growth of 18.2%, significantly higher than last quarter's 17.3% and market expectations of 16.8%. After excluding the impact of exchange rates, the comparable growth rate was 24%, consistent with last quarter, indicating that the improvement in nominal growth this quarter was due to the alleviation of exchange rate impacts.

Although excluding exchange rate factors better reflects the true operating situation, the impact of exchange rates on multinational companies with a high proportion of international business is real and cannot be ignored. More importantly, after last quarter's financial report, the sustainability and extent of the slowdown in ride-hailing business growth was one of the market's biggest concerns. This time, it at least indicates that the decline in growth has not worsened as feared, which is one of the highlights.

Similarly, Uber Eats' food delivery business saw a year-on-year growth of about 18% in order value this quarter, accelerating by about 2.3 percentage points compared to last quarter. Even after excluding the favorable exchange rate impact, the growth rate under constant exchange rates also increased by 1 percentage point. The growth of the food delivery business is actually strengthening, significantly exceeding the market expectation of 15.8% growth.

With improvements in both food delivery and ride-hailing growth, the combined core order growth rate for food delivery and ride-hailing improved from 17% last quarter to 20%.

From the perspective of price and volume drivers, the core business order volume growth rate for food delivery and ride-hailing improved from 17% to 18% this quarter, exceeding market expectations of 16%. This reflects that the improvement in growth this quarter is not entirely due to exchange rate impacts; the business volume unaffected by exchange rates also saw tangible improvements. At the same time, the average transaction value has finally reversed the trend of year-on-year decline, increasing by 0.3% compared to the same period last year. However, whether the increase in transaction value is largely due to exchange rate factors or actual price increases in business needs to be clarified by management during the conference call.

From the user data perspective, the monthly active users this season increased by 14% year-on-year to 171 million, which is an acceleration of 1 percentage point compared to the previous season. This is consistent with third-party research data showing improvements in metrics such as Uber App MAU. On average, each monthly active user placed orders 17.9 times per season, with a quarter-on-quarter increase of 0.1 times. However, due to a high year-on-year base last year, the year-on-year growth rate remains at 3.5%. The growth in per capita order frequency is still relatively weak.

II. Overall revenue growth rate remains flat, and the decline in ride-hailing monetization is a major flaw

Due to legal reasons, some of Uber's operations in regions such as the UK and Canada have shifted from a platform model to a self-operated model, resulting in the company's confirmed revenue changing from net commission to total payment amount, leading to an increase in revenue. Therefore, most of the following analysis will focus on performance after excluding the impact of accounting changes.

From a revenue perspective, although the growth rate of gross bookings in the ride-hailing business has improved, the take rate slightly decreased from 30.5% to 30.3% quarter-on-quarter, causing the revenue growth rate to decline from 26% in the previous quarter to 25%. However, this is still better than the market expectation of a 22% growth rate. We believe that the quarter-on-quarter decline in the profit margin of the ride-hailing business, which will be discussed in detail later, should also be affected by the decrease in the take rate.

The takeout business saw a quarter-on-quarter increase in monetization rate of 0.1 percentage points, combined with accelerated growth in order value, this quarter the revenue growth rate reached 21% year-on-year, significantly accelerating and greatly exceeding the market expectation of 17.5%. Among them, the improvement in high-profit advertising monetization should be one of the main contributors.

Uber's freight business generated approximately 1.28 billion yuan in revenue this quarter, remaining roughly flat year-on-year, with no significant improvement in growth, requiring no excessive attention.

In total across all businesses, Uber's total revenue this quarter was approximately $12 billion, exceeding market expectations by about 1.9%. Year-on-year growth was 20%, consistent with the previous quarter.

3. Overall profit margins continue to improve slightly, but are slightly below expectations due to ride-hailing drag

Due to the company's revenue accounting being unstable, the market has fluctuations. This leads to the gross profit/revenue ratio indicator being not fully comparable. The main focus is on the growth of gross profit amount. This quarter, gross profit increased by 21.8% year-on-year, accelerating by 1 percentage point compared to the previous quarter. The improvement in order value growth rate under nominal accounting this quarter is roughly comparable.

From the expense perspective, the absolute amount of operating support and R&D expenditures remained roughly flat or slightly decreased year-on-year, and with a larger revenue scale, the expense ratio continues to be diluted. Marketing expenses increased by 29% year-on-year, reflecting that the macro and competitive environment faced by the company may indeed be deteriorating, forcing the company to increase customer acquisition investment or subsidies.

Management expenses nearly doubled to $1.11 billion, but this was mainly due to the recognition of approximately $460 million in tax and legal expense provisions this quarter. Excluding this impact, the comparable management expenses remained roughly flat both year-on-year and quarter-on-quarter.

Therefore, with the gross margin remaining roughly flat and excluding the impact of management expense provisions on the expense side, other expenses have basically not increased except for a rise in marketing expenses, which diluted the increased revenue volume. The adjusted operating profit for this quarter is approximately $1.67 billion, and the operating profit margin (as a percentage of revenue) continues to improve slightly.

The company's more focused adjusted EBITDA for this quarter is $1.84 billion, slightly lower than expected by about $0.02 billion, with a year-on-year growth of 44%. The main issue is that the actual adjusted EBITDA profit margin is 4.17%, lower than the expected 4.25%, which is considered one of the flaws in this business. Looking at it by segment:

The adjusted EBITDA for the ride-hailing business was below expectations, at $1.77 billion, about $0.4 billion lower than expected. The profit margin as a percentage of gross bookings is 7.8%, lower than market expectations and the previous quarter's 8%. Combined with the previously mentioned decline in the monetization rate of the ride-hailing business, marketing expenses have also significantly increased, the market may interpret the decline in the profit margin of the ride-hailing business as a deterioration in the competitive landscape under the impact of competitors, including autonomous driving.

The food delivery business, on the other hand, saw higher-than-expected order growth and an improved monetization rate, with adjusted EBITDA of approximately $730 million, about 6% higher than expected, and the profit margin as a percentage of gross bookings also increased by about 0.2 percentage points quarter-on-quarter;

As for the freight business, it incurred a small loss of $22 million this quarter, slightly widening but not significant;

The loss at the group headquarters level was $630 million, a slight increase of $30 million from the previous quarter.