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Uber Q2 earnings are the stock's ‘most convincing evidence yet’: Analyst

DA Davidson Analyst Tom White joins Yahoo Finance Live to discuss Uber earnings, consumer headwinds, rising inflation, advertising, partnerships, and the outlook for post-pandemic growth.

Video Transcript

JULIE HYMAN: "The machine is working." That was the quote from Dara Khosrowshahi on Uber's earnings call yesterday. Investors seemed to agree, for the most part. The stock is rocketing higher by some 13%, as shareholders look beyond the $2.6 billion loss in the second quarter and to the bright spots-- a beat on revenue, a beat on bookings, free cash flow of $382 million.

DA Davidson's Tom White joins us now for a deeper dive into these Uber numbers. And Tom, where do you think, in terms of as you think about where we are in the cycle for Uber, how do you think of their positioning right now?

TOM WHITE: Yeah, first off, thanks for having me. So look, I think from our perspective, the second quarter results from Uber provide probably the most convincing evidence yet that this company and the scale advantages it has over its competitors, the multi-product nature of the platform that it's building, that it is well on its way to building a sustainably profitable and self-funding business in local commerce.

Obviously, there's a fair bit of headwinds seemingly impacting consumers, but the company delivered really strong upside in their core mobility segment. The delivery segment also held up relatively well also. And really, I think the main takeaway from the financial results was the bottom line performance. They delivered big upside on EBITDA.

And probably most importantly in the eyes of institutional investors, they pulled forward their positive free cash flow by a couple of quarters. So they had sort of guided that the fourth quarter of this year, they were going to hit positive free cash flow. They delivered solidly positive free cash flow here in the second quarter and indicated that that's going to continue here, no matter what the macro backdrop looks like. So I think that's what you're seeing with the stock reaction this morning.

BRAD SMITH: We were talking earlier about the importance of Uber's equivalent of a Prime customer, as Amazon would see, a customer that spends more across each of its categories, whether that be on the ridesharing front, whether that be on the deliveries front. And so where we're seeing even more interest from the prospective customers here versus attrition or churn in the future, what most notably would you be keeping an eye on with regard to that component of the business?

TOM WHITE: Yeah, look, I think membership and subscriptions are really a very important part of the story here. Uber, I think, has finally settled on a membership product called Uber One that looks like this will probably be for the foreseeable future, kind of a core offering for them on the membership side. They talked this morning about having, I think, over 10 million members. They shared some stats about how Uber One members are significantly more engaged and purchased a lot more than non-members.

But I think it's just an example of the benefits and the synergies that are afforded by Uber having this multi-product platform, say, relative to a company like Lyft, for example, which is really sort of more of a pure play on rideshare. Uber is building out this increasingly diverse, increasingly broad local commerce platform. And we're seeing kind of growing evidence of there being real synergies between things like mobility and restaurant delivery, grocery delivery, convenience.

They've got additional kind of little adjacent flywheels that are starting to pick up in areas like advertising or Uber for Business. And Uber for Business is a neat little opportunity that's both-- it's both a mobility play and also a delivery play where Uber is partnering with large enterprises to help them transport their employees around and feed their employees.

So, again, the synergies and the opportunities afforded by this multiplatform-- multi-product platform that they're building out, I think we're starting to see exciting evidence that they're building something here that's going to be hard for competitors to replicate.

BRIAN SOZZI: Tom, we're showing the stock price of Uber and Lyft on our screen, seeing Lyft shares up close to 13%. The market appears to be reading this, what is good for Uber is also good for Lyft. But Lyft had a challenging first quarter. Is that the right read by the market?

TOM WHITE: Yeah, look, my personal view is that the read for Lyft is a little less clear still. Uber had very positive things to say about rider demand. They talked about not really seeing any erosion of people's appetite to book rides as a result of rising inflation. And so that would generally point to a positive backdrop for Lyft.

But if you remember last quarter, it was clear that Lyft was having a little bit tougher time bringing drivers back into the ecosystem. They signaled last quarter that they need to spend a little bit more aggressively to bring drivers back to meet sort of rising demand. So we'll have to see kind of how that's shaking out, whether that's going to have an implication on profitability here in the second quarter.

And also, as I touched on before, all of these sort of crosscurrents and synergies that we're starting to see this growing evidence that Uber is being able to generate from having multiple products on the platform, that's not-- that's something that's going to be a little bit harder for Lyft to replicate, obviously. So we're, I guess, maybe a little bit more-- I don't know about cautious, but not as quick to read through that the Lyft print and the Lyft guide are going to be as robust as Uber's.

JULIE HYMAN: Right, and on the driver front, we heard from Uber that their driver signups went up 76% year over year, which definitely caught my eye. We'll see what Lyft does on that front. Tom, good to catch up with you. Good to see you, Tom White, DA Davidson--

TOM WHITE: Thank you.

JULIE HYMAN: --analyst who covers Uber and Lyft, for that matter. Thank you.