3 things you need to know about Uber before buying the stock

Uber (UBER -0.68%) just reported its financial results for the second quarter (ended June 30), and the market was pleased. The company beat Wall Street estimates for revenue and diluted earnings per share (EPS), sending shares soaring immediately after the announcement.

Despite the actions in this transport-as-a-service commercial company at a forward price-earnings (P/E) ratio. of the 30th (starting August 7th), you might want to consider adding Uber to your portfolio. Before you do, here are three things you should know about the business.

1. Incredible momentum

Last quarter, revenue was up 16% year-over-year. This was driven by a 19% increase in gross bookings and a 14% increase in monthly active users (MAU). “The Uber consumer has never been stronger – more people are using the platform and more frequently than ever before – while drivers and couriers earned a new all-time record $17.9 billion in the quarter,” said the CEO Dara Khosrowshahi in the press release.

The business is becoming more fiscally responsible, showing that it can leverage its cost base. Operating expenses rose 11%, much lower than the gain on sales. Consequently, the operating margin increased from just 3.5% in Q2 2023 to 7.4% in the latest period.

Uber’s latest financial results continue the company’s impressive momentum. Shares are up 165% since the start of 2023, crushing S&P 500 and the Nasdaq Composite Index. The market is clearly excited about this business and its prospects.

It’s really not hard to see why. All of Uber’s key metrics, including revenue, operating income, gross bookings and MAUs, are all significantly higher than they were in Q3 2019. The pandemic has been disruptive for many companies, but there were some that came out much stronger on other side. Ending. Uber falls squarely into this category.

2. Competitive power

With the rise of the Internet, we have seen new types of so-called platform businesses emerge. And these are some of the most successful businesses in the world. Think Alphabet and Meta platformsfor example. Or look at Airbnb and Etsywhich benefits from global power network effects.

Uber is a little different. Its key competitive strength comes from localized network effects. If you lived in Denver, Colorado, the group of drivers in Rome, Italy wouldn’t help you at all. But in the markets Uber operates in, the more riders and drivers it has, the more valuable the platform becomes to all stakeholders. Having a first-mover advantage has also helped Uber, making it extremely difficult for a new entrant to steal market share.

3. The autonomous future

There may be no greater threat to Uber’s long-term viability than the possibility of one day seeing fully autonomous vehicles. To be clear, I’m referring to cars that don’t even come equipped with a steering wheel, and those that don’t require passengers to pay attention.

The upside is that this could benefit Uber. It is a leading road transport app that consumers have developed an affinity with. And that’s probably why Alphabet’s Waymo is partnering with Uber.

On the other hand, if Alphabet or adze One day they launch their own ride-hailing service, bypassing Uber entirely? As long as the technology works and is safe, I think these services could take off provided they offer rides at much lower costs than what Uber is doing now.

For what it’s worth, we’re probably still a long way from having this technology available. And there will also be regulatory and consumer confidence hurdles that may delay mass adoption.

If you’re considering buying Uber stock, now you’ve learned some valuable information about the business that can help you make a better decision.