S&P boosts Uber's credit rating to investment grade on improved outlook

The US ride-hailing company is expected to maintain 'solid business execution'

The headquarters of Uber Technologies is seen in San Francisco. The ride-hailing company is projected to be on track to achieve its three-year growth and profit forecast, according to S&P Global RatinShow more

Uber Technologies has been upgraded to investment grade by S&P Global Ratings, citing an improvement in the US ride-hailing company's profit margin and “strong commitment” to maintain conservative financial policies.

The San Francisco-based company's issuer credit rating was lifted to “BBB-", from “BB+", towing Uber from non-investment grade territory in S&P's scale, the rating agency said on Friday.

The outlook for Uber is positive, which indicates a potential for a further upgrade within the next 12-24 months if Uber's financial performance “continues to improve in line with our forecast as it navigates an evolving regulatory and technology landscape”, New York-based S&P said.

S&P also expects that Uber's “solid business execution will likely support continued credit metric improvements and free cash flow growth”.

“We expect Uber to support earnings expansion with economies of scale in its core mobility and delivery businesses and newer business strategies such as grocery and higher-margin advertising,” it added.

Uber's rating upgrade comes at a time when its bottom line is improving. Investment grade makes it easier for a company to raise funding should it wish to grow its business and expand its operations, as well as gain access to lower borrowing costs.

Part of its expansion strategy is to tap into high-growth markets, especially in the Middle East, where it owns the region's leading industry player, Dubai-based Careem.

The company plans to continue growing its operations in the wider Middle East, which is one of Uber's “leading regions” driving its long-term business strategy, Uber chief executive Dara Khosrowshahi told The National in June.

Earlier this month, the company reported revenue of almost $10.7 billion in the second quarter, about 16 per cent up on an annual basis, exceeding analysts’ expectation of $10.5 billion. Its earnings per share stood at 47 cents above the expected 31 cents.

It reported a net profit of more than $1 billion in the second quarter, up from a net loss of $654 million in the March quarter. However, it was up 158 per cent on a yearly basis.

Uber, once the most valuable start-up in the world, has posted a full-year profit only twice in its 15-year history, the last of which was in last year, which was also the first time it ended in the black since going public in 2019.

“While Uber continues to build on its short record of positive adjusted Ebitda [earnings before interest, taxes, depreciation and amortisation] and FOCF [free operating cash flow], our upgrade reflects the company's consistent gross bookings growth above 20 per cent and earnings momentum,” S&P said.

The second quarter was also Uber's sixth consecutive quarter of trip growth above 20 per cent, with drivers and couriers earning a new high of $17.9 billion in the April-to-June period.

The company’s gross bookings increased 19 per cent year-on-year to about $40 billion in the second quarter. Delivery gross bookings rose 16 per cent to more than $18.1 billion and mobility bookings increased 23 per cent to over $20.5 billion.

“They are not only strong but also sustainable … we expect it to sustain Ebitda margin above 13 per cent during this period [as] it has steadily improved Ebitda margins in the mobility and delivery segments from increasing network scale, easing driver supply incentives and lowering consumer promotions,” S&P said.

For the third quarter, Uber had predicted adjusted earnings to be between $1.58 billion and $1.68 billion, up almost 78 per cent annually. The mid-range estimate of $1.63 billion slightly exceeded analysts' $1.62 billion estimate.

“Healthy year-to-date operating performance, coupled with expectations for continued growth in the third quarter, increases our expectation that Uber will achieve our 2024 forecasts broadly in line with management's outlook,” S&P said.

“We believe Uber will stay on track to achieve its three-year growth and profit forecast introduced at its investor update in February 2024.”