We came across a bullish thesis on Uber Technologies, Inc. (UBER) on Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on UBER. Uber Technologies, Inc. (UBER)’s share was trading at $74.60 as of Feb 7th. UBER’s trailing and forward P/E were 16.36 and 28.90 respectively according to Yahoo Finance.
A close up view of a hand holding a smartphone, using a ride sharing app.
Uber presents an exceptional long-term investment opportunity, especially after its recent sell-off following the Q4 earnings report, which seems unjustified given the company’s market strength, growth potential, and expanding free cash flow. The company holds dominant positions in both the global and U.S. ride-hailing markets, commanding 25% of the global market and an impressive 76% of the U.S. market. Uber’s vast network of 171 million users and its large pool of drivers create significant barriers to entry, securing its market leadership. This dominance has allowed Uber to consistently achieve impressive growth in gross bookings and revenue, driven by steady increases in trips and users.
A key differentiator for Uber is its ability to expand margins. The company has transitioned to a position of GAAP profitability, along with robust free cash flow generation, demonstrating its operational efficiency. Concerns about autonomous vehicles (AVs) potentially disrupting Uber’s business are overstated. In fact, Uber is well-positioned to benefit from the rise of AVs due to its extensive user base and established platform. This enables Uber to partner with companies like Waymo or Tesla to introduce autonomous vehicles seamlessly to its massive audience at minimal cost, enhancing its dominance in the future of transportation.
Despite challenges such as currency headwinds and temporary setbacks, Uber’s Q4 performance remains strong. The company saw an 18% year-over-year increase in gross bookings, driven by expanding its user base and the increased frequency of trips, resulting in 21% revenue growth. The mobility segment saw a 24% increase in bookings, validating the strength of Uber’s business model. These results reflect Uber’s consistent execution and operational strength, even amid external challenges.
Looking forward, Uber’s growth prospects remain strong, particularly in its mobility and delivery segments, both of which have ample room for expansion. The company’s diversified offerings, including innovative services like Uber for Teens and Uber for Business, have driven higher user engagement and contributed to increased bookings and trips. Despite market volatility and mispricing, Uber shares offer compelling value, trading at an attractive P/E ratio of under 30x for FY25 earnings, accompanied by a low PEG ratio. The combination of solid growth, expanding margins, and strategic positioning makes Uber an attractive investment for long-term investors.
Uber’s financial performance continues to impress, with adjusted EBITDA reaching $1.84 billion in the last quarter, a 44% year-over-year increase, alongside an EBITDA margin of 15.4%. The company has shown its ability to maintain profitability while controlling cost growth. Its net income, which included a one-off tax benefit, is not as indicative of its ongoing performance, making EBITDA a better gauge of its success. Uber generated $6.9 billion in free cash flow over the last 12 months, and with $7 billion in cash and short-term investments, it has the financial flexibility to repurchase shares, reduce debt, and further strengthen its position.
Concerns about autonomous vehicles disrupting Uber’s business are addressed by management, who believe full-scale commercialization remains years away. Uber’s platform, with its global reach and efficiency, positions the company as the optimal partner for AV companies, ensuring that it will benefit from, rather than be disrupted by, this technological shift. With its deep infrastructure, Uber remains a key player in the autonomous vehicle revolution.
Despite short-term fluctuations in growth expectations, Uber’s long-term outlook remains strong, supported by its market leadership, expanding free cash flow, and operational efficiencies. At a share price just below $75—after briefly trading at $65 last week—Uber remains attractively valued, with an EV/EBITDA of just 19x, a PEG well below 1, and a multiple of 24x on its rapidly growing free cash flow. These metrics suggest the stock is still highly compelling, if not an outright bargain.
Concerns surrounding autonomous vehicle technology have contributed to Uber trading at a significant discount to its intrinsic value for some time, presenting a strong buying opportunity for long-term investors. Based on a medium-term 18x EV/EBITDA multiple or a long-term PEG closer to 1, a reasonable target price for Uber by the end of 2027 stands at $112 per share. From the current price of approximately $75, this would imply annualized returns exceeding 14%, offering a highly favorable risk-reward profile likely to outperform the broader market.
Uber Technologies, Inc. (UBER) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 136 hedge fund portfolios held UBER at the end of the third quarter which was 145 in the previous quarter. While we acknowledge the risk and potential of UBER as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UBER but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.