S&P Global has Uber Technologies Inc. ABOVE The credit rating was raised from BB+ to BBB- on Friday evening after the stock market closed.

The company’s share price has risen 25% over the past two weeks after reporting better-than-expected earnings earlier this month.

The ride-sharing giant’s recent successes could be attributed to a series of cost-cutting decisions initiated in mid-2022.

S&P Upgrade

The upgrade by S&P Global, one of the three major credit rating agencies, puts Uber back into the investment grade category.

BBB- is the lowest investment grade rating, one notch above BB+, the highest junk rating.

At the time of writing on Monday, the company’s shares were up 2.2% and up 5.5% over the past five trading days.

A press release from the rating agency said: “Uber’s solid business execution is expected to lead to further improvements in creditworthiness and growth in free cash flow.”

The company is on track to generate EBITDA of approximately $5.9 billion in 2024 and $7.6 billion in 2025, S&P Global said.

Are the cost reductions working?

As early as May 2022, Uber CEO Dara Khosrowshahi sent a scathing memo to senior management saying the company needed to adapt to tougher times and implement a rigorous cost-efficiency strategy by drastically cutting marketing spending and treating new hires as a “privilege.”

Market conditions reflected rising inflation, the start of a Fed rate hike cycle and more conservative capital allocation by venture capital firms.

The cost reductions already showed positive results in the first months of 2023 and Uber recorded an operating profit for the first time ever in the second quarter of the same year.

With the cuts, Uber led a new trend in the technology industry, where the excess capital that had characterized the past few years has slowly begun to dry up, according to a CNBC analysis.

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According to Crunchbase, the last quarter of 2023 saw VC-backed funding at its lowest since 2018, followed by the first quarter of 2024. While the second quarter of this year saw a 6% increase, it was still 20% below the year-ago figure.

But the downward trend began as early as the first quarter of 2022.

VC investor from Silicon Valley Bill Gurley, an early investor in Uber, said in 2022 that startups need to start being realistic about the economic environment of the time.

For Uber, this meant a first step in cutting costs in key areas such as marketing and advertising, followed by several waves of layoffs – a practice that became common in the technology sector as access to capital became increasingly limited.

What’s next?

Analysts at several firms reacted positively to Uber’s better-than-expected second-quarter results, generally reiterating “buy” or “outperform” recommendations.

The company has a stable customer base that, according to RBC Capital Markets analyst Brad Erickson, “shows no signs of slowing in ride-sharing and delivery traffic.”

S&P Global expects Uber to “support profit growth through economies of scale in its core mobility and delivery businesses, as well as newer business strategies such as grocery retail and higher-margin advertising.”

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