Why Uber’s latest earnings report was a major red flag for the state of the consumer

Uber is a company that I’ve followed for a long time. I have a bear case on it, but that’s not the point of this post. In combing through their latest Q1 earnings report I saw something that really stood out.

First, let’s look at the numbers. In the three months ended March 31st, Uber did $53.7 billion in gross bookings, $13.2 billion in revenue and $2.48 billion in adjusted EBITDA on 3.6 billion trips. Trips are totaled across eats and mobility. Whether I order McDonald's or a ride to the airport it counts as a trip.

For those unaware, gross bookings are the total spend on the platform. If I order a burrito and the total after all their fees is $32, that’s booked as $32 in gross bookings. Of that $32, Uber keeps some portion for themselves and gives a portion to the driver. That combined amount is booked as revenue. Of the revenue, the portion Uber keeps is booked as net income.

Uber does not break out trips across eats and mobility and that is a very key point which I will get to later.

However, Uber does break out gross bookings and revenue across mobility and eats. I’m intentionally excluding freight as it is totally immaterial to Uber’s business at this point.

Here’s what those numbers looks like:

Gross Bookings

Revenue

As we can see here, there were large jumps in gross bookings year over year in both mobility and delivery. Looks pretty good.

But now let’s look at revenue: here we can see that while delivery rose a very impressive 34%, mobility only rose 5% and that was on 25% more gross bookings and 20% more trips across eats and mobility! Adjusted for constant currency, Uber had absolutely no growth in their mobility segment year over year despite doing 25% more gross bookings.

So what does this tell us? Well if we know that there were roughly 6 billion more trips year over year and bookings were 25% higher in mobility while revenue was totally flat, one has to conclude that there were many more trips performed in mobility year over year at lower prices.

My conclusion is this: Uber has two different customer bases- eats and mobility. The mobility side is extremely price sensitive. If costs are too high they will seek alternate modes of transportation like Lyft or driving or whatever else is available. However, I believe the eats side is relatively price insensitive. Whether a burrito costs $27 or $32 won’t sway someone who wants to eat and doesn’t want to leave the house.

Uber, knowing this, adjusts the dials to meet their combined targets. In the most recent quarter I believe they had to lower prices significantly to meet revenue estimates for mobility and simply raised prices on eats to offset what would have been a massive shortfall on combined revenue. Honestly I was shocked to see the street’s reaction to this report with the stock pumping 9% on the print and price targets being raised across the board given the size of that revenue miss.

Previously I stated that Uber does not break out trips across mobility and eats and now we can see why. It provides them the ability to blend revenue from both sides as needed to meet Wall Street’s loftier expectations. I suspect that if you had access to those figures you would see a K-shaped trajectory for mobility and eats, where many more trips happened on mobility at lower average prices while significantly fewer eats trips happened at much higher average prices. I would go so far as to say that nearly all if not more than the 20% growth in trips that were reported came entirely from the mobility segment and if you broke out the eats segment, trips likely were flat or down year over year.

This is all obviously subject to one’s own interpretation as to why Uber would have lowered prices so drastically in the mobility segment. However, looking at these numbers it's hard to dispute that at the very least Uber completed many more mobility trips at much lower prices. What that tells me is that the consumer at the bottom is becoming more and more price sensitive and that side of the business is becoming increasingly dependent on drivers who have to drive and riders who can’t afford higher fares.

Position: Short 800 shares, 10 Jan 27 $65 puts