This Key Advantage Makes Uber the Gig-Economy Stock to Own

Uber (UBER -1.01%) have fully recovered from the COVID-19 pandemic. However, the same cannot be said of his arch rival, Lyft. The two companies’ shares reported very different third-quarter results earlier this month. The trend shows that Uber is taking market share from its smaller rival.

There is one key advantage that gives Uber the ability to grow its ridership faster than Lyft, and this advantage could also help it take on competitors in the delivery space, among others.

The Uber app is becoming the only one you need

In 2019, Uber decided to merge Uber Eats, its food delivery service, with its main ride-sharing program. The move had a major impact on the company’s long-term strategy.

Uber has expanded its services to include grocery and alcohol delivery with the help of other shopping services. It is also expanding its services so that users can make restaurant reservations or buy conference tickets through its app. For almost anything that involves getting out of your house or getting something delivered, Uber wants you to use its app.

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It can develop its services due to the large number of drivers and passengers. These users help to attract restaurants and shops to its delivery points, all of which drive a better way in which it provides more services to consumers, offers more opportunities to operators, and expands its entire network.

This is a huge competitive advantage over Lyft and other ride-hailing companies DoorDash.

The efforts are paying off

The benefits that Uber gets from offering multiple services are already paying off such as increased user traffic, engagement, and retention.

“We’re selling fast…grocery shoppers, food shoppers and alcohol consumers back here,” CEO Dara Khosrowshahi said on Uber’s third-quarter earnings call.

Although the mobile industry initially contributed to the growth of the number of users, the trend is now returning. In the early stages of the pandemic, millions of new users signed up for food delivery services such as Uber Eats. Today, Uber can take advantage of the big user to help its business thrive.

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“[W]e now offers mobile advertising, for example, to … [delivery] affected users[ed] or walking [to] users who have never used mobility before, “said Khosrowshahi. “And we see great promise in terms of actually providing the ability to improve and drive mobility use cases.”

Indeed, the numbers of Uber passengers and drivers working with them will go back up in 2019, according to management. Meanwhile, Lyft’s ridership is still more than 10% below its 2019 peak.

Can Uber dominate both markets?

Uber already dominates the ride-sharing business, but is in second place when it comes to its delivery business. Its deposits grew by 13% last quarter. Meanwhile, DoorDash’s system value grew by 30% each year, including a 10% share from its Wolt acquisition. Even looking only at DoorDash’s organic growth, Uber is losing ground.

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But investors needn’t worry. The same advantages that allowed Uber to rebuild its ride-hailing business should allow it to eventually regain market share in the delivery niche. While DoorDash only invests in expanding its delivery service, Uber can keep up.

Uber’s delivery business was only profitable on an adjusted EBITDA basis. This, combined with its returning business, the company will begin to generate more free cash flow. This will allow it to invest in building its services and compete in delivery with DoorDash, which will also give it more opportunities to grow and share its customers.

I expect Uber to increase its share of the delivery market over time as it benefits from increased customer and driver traffic. After all, this makes it grow faster, attract new users, and grow better.

Adam Levy holds positions in Uber Technologies. The Motley Fool owns and recommends DoorDash, Inc. and Uber Technologies. The Motley Fool has a disclosure policy.


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