Uber's network effect continues to strengthen: Analyst

Uber (UBER) shares are dropping after the rideshare company's first quarter results saw gross bookings fall below Wall Street estimates. WestEnd Capital Management Senior Equity Analyst Ali Mogharabi joins Market Domination to break down Uber's earnings and what it could signal for the company's future.

"We were not necessarily surprised by the numbers," Mogharabi tells Julie Hyman, saying that the company saw strong gross bookings and total revenue overall. "The network effect of this entire platform continues to strengthen," he adds, citing increasing user growth and frequency.

Mogharabi adds that Uber stock's dip is an "overreaction to a slight miss on mainly the bottom line, which was basically a decline in the unrealized value of the equity investments that these guys have."

He points to Uber Eats as a success for the company, citing the platform's continued growth long after the uptick caused by the coronavirus pandemic.

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This post was written by Melanie Riehl

Video transcript

All right, let's get to Uber earnings.Now, those shares down 6% today.After the company's first quarter, results revealed gross bookings fell below estimates for more on the numbers and what they mean for the ride sharing giant.Moving forward.One, welcome in Ali Mora, the West end Capital Management, senior equity analyst, Ali.Um congrats on the new position, by the way, good to see you here in a, in a different role.Um So this really caught a lot of people by surprise.Were you surprised by the numbers?And what was the biggest source of that surprise?Well, actually, we were not necessarily surprised by the numbers.Uh We think that they were very, very strong.Uh You know, you've got very strong growth in gross bookings.Uh You've got strong growth in total revenue.Uh Both both of the main segments performed very, very well when you're talking about mobility or or delivery.Um And my biggest takeaway, our biggest takeaway was the network effect of this entire platform continues to strengthen.So you've got user growth around 15% you've got their frequency increasing at around 6%.Um And a lot of that growth.And we're talking about revenue growth.Also, a lot of that growth wasn't necessarily driven by higher prices, was actually driven by higher demand again in, in the two largest segments.So overall, we were pretty pleased.And of course, you know, let's not forget we just talked about the top line.Let's not forget about the bottom line margin expansion on the Eva da side.So we were actually pretty pleased.We think there is, this is an overreaction to a slightness on the, on mainly the bottom line, which was basically a decline in the unrealized um uh value of uh of the equity investments that these guys have.I'm interested ali to drill down specifically into Uber eats.Just get your take on that segment.Ali, how much of a growth driver do you think it is for the company looking ahead?Um It's actually, well, first, let me say this, it's very surprising that these guys still continue to grow, right?I think it was around 17%.Uh You know, we're, we're a few years away or a few years past the, the COVID and looks like consumer behavior uh has actually adopted to ordering online and for, for delivery.So, uh we are, we still are very confident about continuing growth uh in the mid teens uh going forward.And uh and also, of course, you know, let's look at the further expansion that these guys have when it comes to groceries and other retail and the partnership that they've got with, with Instacart, they, I think they announced it yesterday.So uh we think that will provide additional growth.And then besides that, you know, let's talk about advertising.I mean, you know, these guys, we talked about user growth, uh I think 100 and 49 million.So, you know, you've got a very wide audience and I think the CPG consumer package goods uh brands want to expose brands on this widely used platform.So uh on the delivery side, I think the high margin, a revenue will also contribute to growth.Uh So, so we're pretty, I'm pretty confident about the continuing growth in the delivery side of the business.Ollie, I do want to ask about two things that there seemed to be concern around.One of them was about cooling demand in Latin America.And secondly, there's the continuing sort of regulatory overhangs that are uneven, sort of depending on what region you're looking at.Are those a concern for you?Not necessarily.Um the first one is somewhat, I mean, uh somewhat seasonal, you could say um the, the second one from a regulatory standpoint, uh let's look back, I mean, you know, I I've been uh following this company covering this company for a long time before their IP O and they've continued to face uh regulatory uh threats.And what we have realized is that the platform itself is so effective in terms of satisfying demand by the users that it's created that network effect, that the user will continue to come on.And it's become somewhat of a, you know, you could say a necessity.So some of the those costs that they may uh additional costs that they may incur because of new regulatory measures could actually be passed on to the consumers and, or to the merchants.Uh So from that standpoint, uh you know, we're, I'm pretty comfortable that, that these guys can overcome this and to a certain extent, you know, they've done, they've been very successful in actually reaching compromises with the lawmakers at various levels, whether it's a dim level, the state level or the federal level.Uh So, uh again, I'm, I'm pretty confident that management will uh approach these um the way they should, of course, in different regions, different markets.Ollie, when you look at the results both for Uber and Lyft, um any kind of broader takeaways you had about the state of the consumer because I was, you know, Ollie, I was actually impressed how they both sounded generally positive on the consumer.Yes, I was too.Uh consumer spending continues to uh to move along.Um uh you know, various indications that, you know, from a macro standpoint, we're not necessarily in a recession.And uh and as I mentioned before, uh consumer behavior has adopted very, very well to these platforms or you could also say the other way around the platforms has has adopted to consumer behavior.So the network effect of both firms and in my opinion, both Uber and Lyft uh remain strong.Of course, you know, we prefer Uber uh mainly because it's more of a diversified type of business and we saw the benefits of that uh during COVID.Um but uh but yes, both are actually uh situated pretty well in an environment where consumers continue to use the platforms ali it was great having you on the show today.Thank you so much for joining us.Thank you.