Uber Eats Keeping Uber Stock Healthy?

Uber’s (NYSE:UBER) food delivery service, Uber Eats, is the company’s fastest-growing business. In this analysis, we take a look at how Uber Eats has grown and whether it could emerge a key driver of Uber’s valuation.

#1 Uber’s Fastest-Growing Business

#1.1 Uber Eats Accounted For 13% Of Uber’s Revenues In 2018, Up From 3% In 2016

  • Uber Eats’ reported revenues grew by 148% in 2018 to about $1.5 billion.
  • In comparison, the company’s bread-and-butter ride-sharing revenues grew by about 33% over the same period.
  • Uber Eats revenues as % of Uber’s total revenues have expanded from 2.7% in 2016 to 13% in 2018.

#1.2 Eats Net Revenues Grew By ~150% Over 2018, Versus 33% For Ride Sharing

#2. However, Growth In Some Core Metrics Is Slowing Down

#2.1 Net Adjusted Revenues Growth Is Slower, Due To Higher Incentives

  • Gross bookings – which represents the total dollar value of meal deliveries to customers – has been growing fast, rising to $3.4 billion in Q4 2018.
  • However, Net adjusted revenues have grown at a slower pace, up 43% YoY over H1 2019, vs. Gross Revenues, which almost doubled.
  • Net adjusted revenues are calculated adjusting for Driver and restaurant earnings, Driver incentives, and Driver referrals.

#2.2 Take Rates Have Also Trended Lower

  • Take Rates, which are defined as Adjusted Net Revenue as a percentage of Gross Bookings have also generally trended lower, likely due to higher incentives.

Uber Eats May Not Be A Big Driver Of Uber’s Valuation or Uber’s Stock Price

  • While Uber doesn’t break down the expenses or margins of its Eats business to enable us to estimate its valuation, we believe that the division will not be a major driver of Uber’s valuation in the long-run.
  • For instance, Grubhub which held about 33% of the U.S. food deliverymarket in June 2019 had a market cap of under $6 billion. In comparison, Uber held less than 17% of the U.S. market.
  • While Uber also operates its Eats business overseas, unlike Grubhub, which is U.S. only, it’s probably safe to assume that Uber Eats won’t have a much higher valuation or have that big an influence on Uber’s stock price in the future.
  • Uber also indicated in its Form S-1 that its addressable market in its core-ride sharing business was over 3x the food delivery space, meaning the long-term potential may also be less.

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