Uber (UBER -1.01%) He has fully recovered from the COVID-19 pandemic. However, the same cannot be said of its main rival, Lyft. The two ride-sharing companies reported wildly different sets of 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 faster than Lyft, and that advantage could also help it take on competitors in the delivery space, among others.
Uber’s app is becoming the only one you need
In 2019, Uber decided to integrate Uber Eats, its food delivery service, into its main ride-sharing app. The move telegraphed much about the company’s long-term strategy.
Uber has since expanded its services to deliver groceries and alcohol with the help of some purchases. It is also expanding its services so that users can make restaurant reservations or buy event tickets through its app. For almost anything that involves leaving the house or having something delivered to it, Uber eventually wants to be able to use its app.
It has been able to develop its services thanks to its wide network of drivers and riders. That user base helps attract restaurants and stores to its delivery platform, all of which drives a virtuous cycle where it can offer more service to consumers, more options for drivers, and grow its overall network.
That’s a huge competitive advantage over Lyft and other gig economy companies like it DoorDash.
They are trying
The benefits that Uber achieves by offering multiple services are already paying off in increased user growth, engagement and retention.
“We’re actively selling … food delivery consumers to food, food consumers to alcohol and then to mobility as well,” CEO Dara Khosrowshahi said on Uber’s third-quarter earnings call.
While the mobility business initially supported the growth in the number of delivery users, the trend is now reversing. In the early stages of the pandemic, millions of new users signed up for food delivery services like Uber Eats. Today, Uber can leverage that large user base to help revive its mobility business.
“[W]They are now offering mobility promotions such as… [delivery] Users with churn[ed] or mobility [to] Users who have never used mobility before,” Khosrowshahi said. “And we’re seeing a lot of promise in terms of delivery, really being able to cross and drive mobility use cases.”
In fact, Uber’s driver and active driver numbers have recovered to 2019 levels, according to management. Meanwhile, Lyft ridership remains more than 10% below its 2019 peak.
Can Uber dominate both markets?
Uber already dominates the ride-sharing industry, but is firmly in second place when it comes to its delivery business. Its gross shipping bookings grew just 13% last quarter. Meanwhile, DoorDash’s gross order value grew 30% year over year, including a 10 percentage point contribution from Wolt’s acquisition. Even looking at DoorDash’s organic growth alone, Uber is losing out.
But investors should not worry. The same advantage that allowed Uber to rebuild its mobility business should eventually lead it to regain market share in the delivery niche. While DoorDash only invests in expanding its delivery service, Uber is able to follow suit.
Uber’s delivery business has become profitable on an adjusted EBITDA basis. This, along with a recovering mobility business, has started generating significant free cash flow for the company. This will allow it to invest in building its services and compete with DoorDash on delivery, which in turn will give it more cross-selling opportunities to grow and engage its customer base.
I expect Uber to increase its share of the delivery market in the long term as it benefits from its massive network of consumers and drivers. After all, these allow you to expand quickly, attract new users and grow profitably.
Adam Levy has positions in Uber Technologies. The Motley Fool has positions and DoorDash, Inc. and recommends Uber Technologies. The Motley Fool has a disclosure policy.
