Why Uber demand is strong despite the macro mess

Big Tech has had an overall disastrous earnings season, as inflation and rising interest rates have put the brakes on consumer demand and spurred companies to rein in their advertising budgets.

In Q3, Amazon (AMZN) and Alphabet (GOOG, GOOGL) missed revenue expectations, while Meta (META) barely met expectations as it clocked a massive loss on its metaverse operation, Reality Labs.

However, for Uber (UBER), it was a different story. This week, the ride-share giant reported that its revenue rose 72% year-over-year. The figure beat analysts’ expectations, coming in at $8.34 billion versus the expected $8.13 billion. But that’s not what impressed the Street; it’s the fact that, this time last year, Uber’s revenue was $4.8 billion.

“This is a shock to the upside,” Wedbush Senior Equity Research Analyst Dan Ives said this week on Yahoo Finance Live.

So, Uber’s revenue growth also poses a logical question. If consumers are spending less, why is there still demand for Ubers? As it turns out, there’s a simple answer — the pandemic is easing.

“As the world emerges out of the pandemic while adding more to the platform, Uber aims to capture significant growth in demand while meeting its profitable growth targets with a more mature marketplace,” Ives wrote in an Oct. 21 note.

To be fair, Uber has shown a major year-over-year revenue increase before. In fact, in Q3 2021, that $4.8 billion revenue number was also about a 72% increase year-over-year from 2020. Still, given a deeply difficult macroeconomic environment and an earnings season that’s shown few bright spots for tech, Uber’s revenue win comes against all sorts of odds. Tech’s also dealing with a demand problem, as companies prepare for a muted holiday season.

Uber CEO Dara Khosrowshahi reacts on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, US, August 2, 2022. REUTERS/Andrew Kelly

Uber CEO Dara Khosrowshahi reacts on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, US, August 2, 2022. REUTERS/Andrew Kelly

With the company’s Q3 results this week, it certainly seems like Uber’s set up to maximize that uptick in mobility demand. The read-through is this: Even if they’re not spending as much, consumers might be going back to feeling comfortable being out and about.

“Despite recessionary concerns, Uber is not seeing any impact to consumer demand including across income brackets or international markets including Europe,” Andrew Boone, analyst at Citizens-owned JMP Securities, wrote on Nov. 1. “This as the company is benefitting from cities reopening, travel demand remaining strong, and a continued shift of consumer spend to services from goods as October is on track for the best month ever for mobility and company-wide gross bookings.”

In fact, the driver shortages that plagued Uber for most of the pandemic are dissipating.

“Driver shortages are in the rearview mirror and really what’s happening is that consumers are starting to accept those higher price points,” Ives added on Yahoo Finance Live.

‘A doctrine of relatively low expectations’

Still, there’s little reason to get too optimistic about Uber and the gig economy space overall just yet. After all, Uber did clock a larger-than-expected loss per share, coming in at $-0.61 versus $-0.17 expected.

“I think this is a doctrine of relatively low expectations for Uber,” Arete Research Managing Director Richard Kramer told Yahoo Finance Live on Nov. 1. “I think most of the tone of the questions on the call was about whether they were starting to see a macro slowdown and that was the real fear.”

The stakes are high for Uber management right now, including CEO Dara Khosrowshahi. Q3 showed “progress that management needed to deliver to frankly keep their jobs in moving towards proper profitability for the business,” Kramer added.

Uber shares are down about 32% year-to-date as of market open on Thursday — performing slightly better than the tech-heavy Nasdaq, which is down approximately 34% year-to-date.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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