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Eats, Delivery pushing Uber toward profitability

As Rides business recovers from pandemic, rapid expansion in other areas fuels growth

Uber expects continued growth in its Eats and Delivery businesses to help fuel its drive to profitability, perhaps by the end of 2021. (Photo: Uber)

Uber’s (NYSE: UBER) earnings results, announced on Wednesday, offer a mixed bag of news. On the Rides side, business continues to struggle to escape from the COVID-19 pandemic, but the remainder of the business is showing signs of strength. That led to CEO Dara Khosrowshahi declaring on CNBC Thursday morning that profitability is within sight, perhaps by the end of 2021.

KeyBanc and Cowen both raised their price targets for the company, with KeyBanc maintaining an overweight rating and raising its target from $63 to $75. Cowen maintains an outperform rating and has pushed its price target from $64 to $74.

Uber posted a net loss of $968 million versus a consensus $1 billion, and loss in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $454 million, down $171 million from a quarter earlier. Gross bookings revenue missed estimates, coming in at $17.15 billion versus a consensus of $17.36 billion. Khosrowshahi said mobility bookings, at $6.79 billion, were up 15% in Q4 compared to Q3 but were off 47% year-over-year. Bookings remained down in January, he said, falling 47% year-over-year.

Uber Freight posted year-over-year growth with revenue of $288 million in Q4, up 8.6% over Q3. Adjusted EBITDA for Uber Freight narrowed to a loss of $41 million from a loss of $55 million last year. 

Read: Uber Freight’s Q4 numbers up from 2019 and from third quarter

In the earnings call, Khosrowshahi said Uber has “increased confidence in our ability to reach breakeven this year while continuing to invest in long-term initiatives close to our core.”

That core, increasingly, is its delivery platform, which the CEO noted would benefit from the mobility side of the business.

“Looking ahead, our strategic priority in 2021 is to continue to harness the power that our platform … and growing product offerings can uniquely provide. Wherever you need to go, whatever you need to get, Uber can help,” he said. “We believe our highly engaged consumer base on delivery will drive stronger mobility growth as cities reopen. On the flip side, we expect Mobility to become an increasingly powerful acquisition channel for our Delivery business.”

Khosrowshahi said growth in membership programs such as Uber Pass and Eat Pass, which have grown from 1 million members to over 5 million, will accelerate and become more valuable as Uber expands into other verticals, including pharmacy.

In the Delivery business, Q4 gross bookings grew 128% year-over-year, reaching a $44 billion run rate in December, he said. Revenue more than tripled to $1.4 billion and adjusted EBITDA margin as a percentage of revenue improved 100 points year-on-year. Delivery was up 66% year-over-year, and Uber now has 675,000 merchants on its platform, up from 450,000 in Q1. Its Uber Eats app has been downloaded 92 million times.

Read: Uber buys food delivery startup Postmates for $2.65 billion

Delivery represented 52% of all gross bookings in 2020 and continues to scale as more consumers and businesses join the platform.

“As the network gets more dense, essentially a courier has less [ground] to cover for the average delivery, and our algorithms are getting smarter in terms of routing, in terms of wait time with restaurants and optimizing every last percentage in order to drive cost-per-transaction efficiency, which then helps our net revenue,” Khosrowshahi said. “And it also really helps carrier earnings because they are being productive a higher percentage of the time that they are on network.”

As each quarter moved on, the Delivery business improved performance, growing gross bookings from $4.7 billion in revenue in Q1 to $10.1 billion in Q4. Adjusted EBITDA also improved, from a loss of $313 million in Q1 to a loss of $145 million in Q4.

Last year, Uber acquired Postmates and Cornershop, and in January it agreed to acquire Drizly, an on-demand alcohol platform. It expanded its grocery delivery business in the summer. Uber said that grocery and other new verticals it has been expanding into had a $1.5 billion annualized run rate in Q4.

“It’s become clear that the pandemic has increased consumers’ appetite for on-demand delivery of not just food, but all goods, and we take a major step to address this enormous opportunity,” Khosrowshahi said.

The Postmates acquisition, which closed in December, has brought on board name brands such as Walmart (NYSE: WMT), Apple (NASDAQ: AAPL) and 7-Eleven. Delivery-as-a-Service represents 18% of Postmates business, and Uber expects to scale this further with integration into its Uber Direct product.

Read: Spiking sales draw Uber into on-demand alcohol business

“We’ve seen our business accelerate in January to over 150% year-on-year growth as the delivery continues to provide a natural hedge and lockdown. It’s become clear that the pandemic has increased consumers’ appetite for on-demand delivery of not just food, but all goods, and we take a major step to address this enormous opportunity,” Khosrowshahi said.

“As we progress throughout the year, the Delivery EBITDA should improve significantly, and we remain confident in achieving breakeven at some point in 2021. Putting it all together, we expect total company gross bookings to return to year-on-year growth in Q1 despite the current COVID impacts in Mobility as Delivery continues to drive strong growth,” said Nelson Chai, CFO.

Uber’s plan includes growing its Uber for Business (U4B) and Eats for Business, where growth has been ongoing. In 2019, gross bookings on U4B were 100% on the mobility side. The Eats delivery business represented 35% of gross bookings in 2020, helping offset a 51% year-over-year decline in the mobility business.

“I would consider it a relatively greenfield opportunity for Uber,” Khosrowshahi said. “We have — we focused on initially kind of a consumer-to-consumer package delivery [model] through Uber Connect, which has been very interesting. But the enterprise business is one where, frankly, we’re going to take the lead from the Postmates team, who has built out those capabilities, already has merchant relationships with Apple, with Walmart and many others. And with our scale and our geographic footprint, which is broader, we think we can scale that business out quite attractively.”

The growth opportunity in grocery comes as users of Uber’s app seamlessly shift to Uber Eats and the delivery app, Khosrowshahi said.

“We have a global audience, and that’s, we think, a substantial strategic advantage versus our competition. It’s really the merchant relationships that we have to work on. And in many markets, we are in great shape and in some markets, we have to develop those merchant relationships,” he said.

Click for more FreightWaves articles by Brian Straight.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected]