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Uber Undervalued, on Track to Profitability

Ali Mogharabi (ali.mogharabi@morningstar.com)

While demand for Uber's UBER services remains strong, the firm's second-quarter revenue came in a bit short of consensus expectations and losses were higher than expected due to the restricted stock unit expenses related to its IPO. However, in our view, there are some indications of possibly operating leverage as growth in users and rides was not accompanied by significantly higher operations, support, and marketing costs as a percentage of net revenue. Plus, excluding a one-time IPO-related award to drivers, take rates in the firm's core platform increased sequentially, which we think further displays ride share price stability and a stronger online food delivery market position for Uber Eats. Management now expects net revenue growth to accelerate a bit during the remainder of 2019 driven mainly by growth in gross bookings. Based on second-quarter results, we slightly adjusted our 10-year model and are maintaining the $58 per share Uber fair value estimate. After surging more than 8% during market hours, the stock is down 6% in after-hours. This name requires some patience, but we remain confident that Uber, along with its peer, Lyft, are progressing toward profitability. We continue to recommend investing in this 4-star narrow-moat name.

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