Uber earnings: Q1 ‘was a trophy case quarter,’ analyst says

Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss quarterly earnings for Uber, initiating an Outperform rating on the stock, consumer demand, profit expansion, and the outlook for the rideshare giant.

Video transcript

DARA KHOSROWSHAHI: Early last year before everyone else was raising alarms about the reality of today's capital markets and discipline needed, we raised the alarms internally and we took action early so that we didn't have to be reactive like a lot of other tech companies have been. So we're innovating, we're building while a bunch of people are restructuring.

JULIE HYMAN: And that was Uber CEO Dara Khosrowshahi highlighting Uber's ambition to innovate. The company reported a revenue beat for the quarter with its mobility segment building on to 2022 strength as riders begin to take more trips. Joining me now to weigh in on Uber's first quarter results, Wedbush Equity analyst Dan Ives. Dan, friend of the program joining me not too far away from another studio, home studio in New Jersey. Good to see you, Dan. So--

DAN IVES: Good to see you.

JULIE HYMAN: --you talked about in your note that this is an inflection point for Uber. What is causing that inflection point? What is the company doing to now unlock the next phase of growth?

DAN IVES: Yeah, I mean, look, if you go back a year and a half ago, their back was against the wall. And, ultimately, what you've seen is they've cut costs, they've gotten to profitability. You have take rates that are up. And you're really starting to see a booking story that I think is not just expanding, I think gaining share from little brother Lyft, in terms of domestically. So right now, I mean, this is, I'll call it a trophy case quarter for Dara and the team.

BRAD SMITH: Hey Dan, when you think about what has to happen now for Uber to really kind of lock in profitability over a long term, what would that look like to you? What kind of pulls and levers do they need to enact?

DAN IVES: I think you're starting to see more and more. The take rates are increasing. They're getting more and more shared peak rides. You're starting to see travel continuing to expand.

And at the same time, they've been laser focused on where they're spending money. And I think, ultimately, that all means you're going to have a free cash flow story that expands, profitability that expands, and bookings that actually goes up in 2023. It's almost like the dream of a few years ago now finally has become a reality for a stock that, in my opinion, is still way under owned.

JULIE HYMAN: So what happens on the profitability side, right? When do we get to net profitability? And then do you see, as a result of that-- you talked about it being under owned-- is that kind of the thing that gets more people to pile in?

DAN IVES: Well, that's I think many investors that I talk to, they've just been skeptical about the story, snake bitten in terms of the ride sharing space the last few years, always waiting for another shoe to drop. And I feel like finally, look, this is a different Uber. It's a different Dara. And it's a company right now, strategically speaking, that I think you start to look at sustainable profitability into the rest of the year, into 2024.

The free cash flow story really starts to come through. Uber One and when you look at freight and some of the other initiatives, I think that should add to the sum of the parts. And now, this is really, I think, an Uber that's on the offensive, not defensive.

BRAD SMITH: Dan, you think about some of the tech companies that you cover. And over the course of this earnings season, we've seen reactions like this where, ultimately, the stock's become extremely volatile, perhaps just rebounding or continuing to have some sense of relief. You know, if there was a way that you'd sum up what we've seen from tech companies over this earnings period, what would it be?

DAN IVES: Look, I think it's the same ones that are skeptical about, ultimately, tech being able to navigate the storm. And I think, ultimately, as this all plays out, it's important because it's better than fear. I think many have been on the sidelines watching big tech, yelling fire in a crowded theater, still using their 2022 CPI PPI playbook. And, ultimately, that's why tech continues to outperform.

And, in my opinion, I think that's really the narrative here. You have a tech earnings season. But you came in with agita and white knuckles. And at least for big tech, you actually now are drinking a cappuccino watching a lot of these names.

JULIE HYMAN: It does feel that way a little bit. I want to ask you about Tesla though. Because there's one where, mm, maybe you need something stronger than a cappuccino if you've been watching the recent stock action, Dan.

The company did just come out and say it was raising some of its prices in China, but also it sounds like in the US. Not raising by much, right? And so is this just like a bonus throwing to investors? Or what do we make of it?

DAN IVES: Yeah, look, it's been all of us under a lot of pressure with the six price cuts. It's that push-pull between margins and units. And, obviously, the stock had a nice rebound that we've seen earlier this year. But going forward, it's about showing that the sustainable growth story in China is there, that the price war that's playing out, they're going to be able to navigate, you know, ultimately, to a company that hits 1.8, 1.9 million units. But you're able to have that gross margin at credit in that sort of upper 10%, 20% range and going forward.

That's going to be the balancing act here for Tesla. Look, I think the stock's oversold. But no doubt, it's a proven story into the second half of the year.

And Musk and the team have been there before. But I think you're just going through a digestion period here. But I would ride them, put an iron fence around their install base in what is this EV arms race playing out, especially in the 313 area code with GM and Ford going all in.

BRAD SMITH: Hey Dan, while we have you, of course, we do know that you cover Apple. We've discussed Apple at length previously. We're waiting for those earnings to drop this week.

And just looking through some of the expectations, especially amid a PC market that is already hit hard, some of the other companies in tech, mega-cap tech companies who have seen that demand wane. Apple, of course, majority of their business is the iPhone. But where might this still show up? And where else in the business would you be kind of safeguarding against some cracks?

DAN IVES: Yeah, look, in terms of Macs and, of course, when you look at iPads and that was a pull forward post-COVID, those continue to be extremely soft. But this is an iPhone story. And demand continues to uptick in China.

And, remember, a lot of investors, they despise the stock at 120, thing it's going to 100. They absolutely hate it at 168. And I think it's just a name, in my opinion, that it's going to be better than fear. I think units are stable.

And I think as the baton gets handed to the iPhone 15, you know, the anniversary edition in September, this stock is going to remain strong. And services, you start seeing more and more of an uptick out of the App Store. And that's key to some of the parts thesis here in Apple. I think gold standard Cupertino continues to play out.