Uber car waiting for customer

Uber: A closer look at its advertising business (NYSE: UBER)

Uber car waiting for customer

MOZCO Mateusz Szymanski / iStock Editorial via Getty Images

Uber Eats, owned by Uber Technologies, Inc. (UBER), launched its first in-app ad format with sponsored restaurant listings on August 11, 2020, allowing restaurants to market their menu items. Uber Eats experimented with the new strategy to increase sales during the pandemic when restaurants were closed for on-site dining. To encourage restaurants to test the new format, the company offered $ 25 million in marketing credits to small and medium-sized businesses facing challenges from restrictions related to the pandemic. Ads analysis for sponsored ads looked promising for restaurants with limited marketing budgets and facing financial pressures due to the pandemic. Uber’s new business strategy provided an opportunity for restaurants to improve their marketing strategies to reach a larger customer base and achieve higher returns, and I think the recent success of this advertising business could go a long way in helping Uber to become profitable. At Leads From Gurus, we invested in Uber at a price of $ 41.51 per share, and I think the company is now deeply undervalued (please see my other articles on Uber here).

Uber Eats advertising company

Sponsored Ads on Uber Eats is an advertising service that helps partner restaurants increase their visibility and rise to the top of Uber Eats ads. It allows restaurants to optimize their campaigns by providing detailed information on the total number of people who clicked on their sponsored ad and placed an order. The advertising service follows a cost-per-click pricing model, which means restaurants only pay when an app user clicks on the sponsored listing. This helps restaurants keep marketing costs down while targeting a user base that is very likely to place an order. The advertising platform allows restaurants to target their ads based on customer location, order history, and dietary preferences, which can help restaurants increase their return on ad spend.

Since 2019, Uber has shown interest in diversifying its revenue stream to include ad sales, and 2020 was the best time to introduce sponsored ads, as online food orders hit an all-time high due to the restrictions. of mobility. Demand for Uber’s ridesharing services has been significantly affected due to the pandemic, however, Uber Eats saw record growth in 2020. According to a Pew Research Center survey conducted in April 2020, 32% of those polled in United States has ordered food from a local restaurant online since the start of the pandemic. The number was higher among young people, with 53% of those aged 18 to 29 reporting having placed at least one restaurant order online. Geographically, 35% of Americans in urban areas, 36% in suburban areas, and 21% in rural areas ordered online from a local restaurant due to mobility or convenience restrictions.

This increase in the number of online food orders gave Uber Eats a good opportunity to test sponsored ads. The company had already experimented with native advertising in India in 2018. As part of its promoted placement model, restaurants could bundle many food items and sell them at a discounted price in exchange for a placement promoted by Uber Eats. After the successful launch of the ads in the United States in the third quarter of 2020, Uber extended the service to Canada, Mexico, France, Japan and Taiwan in the fourth quarter of the same year.

The annualized ad revenue execution rate exceeded $ 100 million in the third quarter of 2021, with more than 140,000 active ad merchants. Uber has so far launched its advertising platform in all delivery regions except Germany, which suggests the company is serious about this business segment.

If Uber can help restaurants increase traffic to their stores with marketing solutions – which is exactly what is happening today – the company could also gain competitive advantages with its delivery business, which strengthens my market. thesis for the company. To recap my take on Uber, I think the company will remain the leader in the ridesharing industry for a long time, which on its own should help the company achieve profitability. I have never been so impressed with the Eats segment, but the advertising industry may change my opinion in the future. If that happens, I will increase my price target for Uber in the coming months (my current target is $ 66.51).

There is more to advertise

Last August, Uber began testing in-app ads with the goal of monetizing the primary mobile app. The company started showing ads on a pop-up screen once a passenger confirms a reservation, but has since focused on showing ads once the trip has started as well. This is a good thing as passengers usually check the Uber app once they are inside the vehicle (to check ETA and look for faster routes), which is a good opportunity for advertisers. grab the attention of their target group. The company, of course, needs to implement these changes in a way that doesn’t degrade the user experience so much as runners start using the services of competitors. There is a lot of uncertainty, which is exactly why I am not exaggerating yet with my expectations for the advertising industry.

The increasing use of mobile marketing is likely to generate significant growth in the in-app advertising industry. According to Fortune Business Insights, the global mobile advertising industry was worth $ 73.55 billion in 2020 and is expected to grow at a compound annual growth rate of 34.8% through 2028. Mobile advertising has proven to be be a crucial and profitable strategy to reach a broader customer base for businesses of all sizes and sizes, and the increased adoption of 5G is expected to increase the use of in-app video ads, which is expected to result in higher engagement rates. The growth of this industry is also being fueled by the increasing use of location services for mobile advertising to show relevant content to users.

Uber now offers outdoor advertising solutions such as in-car advertising, which is another innovative way for the company to maximize its real estate portfolio to tap into new sources of revenue.

Advertising industry gets a talent boost

It is essential to have exceptional talents to carry out a successful business plan. Hiring such talent is also strategic for the performance and bottom line of the company. Last September, the company hired Dr Mark Grether, former CEO of Sizmek and chief advertising officer of Amazon, as the managing director to oversee the company’s advertising activities. Dr Grether shared the news in a post on LinkedIn, saying he would work with Uber to create a strong line of products with which Uber can help merchants, brands and advertisers reach the highly engaged user base of ‘Uber in 32 markets.

To take with

Uber’s advertising business is growing slowly but steadily, and the company appears to be focused on its quiet growth into a multi-billion dollar business unit. If Uber successfully executes this plan, operating margins will experience a noticeable improvement, which in turn could prove to be a catalyst for achieving profitability. There is a lot of if, that’s why I’m not making any changes to my intrinsic value estimate for Uber at this time, but the business is moving in the right direction.

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