Uber Technologies (UBER) is a leading global mobility technology company that offers rideshare, food delivery, and shipping services through its technology platforms. The company operates in over 63 countries with a large customer network of over 110 million people. The vast majority (76%) of its revenues come from ride sharing.
The main value for UBER stems from fees it generates by matching riders/consumers with drivers/restaurants across its large network. Its competitive advantage stems from its massive network of app users, which entices drivers and restaurants to offer their services on its platform, in turn attracting more customers and launching a virtual growth cycle. (See Uber stock charts on TipRanks)
UBER Ups and Downs
The company has experienced massive growth since its founding and is expected to continue its momentum for the foreseeable future. Revenue is expected to grow by over 40% in both 2021 and 2022, while EBITDA is expected to grow by a whopping 74.4% in 2021 and 325.6% in 2022, as the company should finally reach bottom-line profitability that year.
That said, the company still faces some very real challenges. For one, the impending rise of autonomous vehicles from numerous major tech giants like Google (GOOGL) and Tesla (TSLA) could significantly hurt UBER’s ride share business and potentially even replace it with an autonomous taxi business. Additionally, UBER continues to run up heavy losses. Last but not least, its food delivery business faces significant competition from companies like DoorDash.
While the company is expected to grow into profitability within the next few years, any combination of increased competition, regulation, or disruptive technologies could harm its path to profitability and lead to significant shareholder losses.
Valuation Metrics
Despite these headwinds, UBER still possesses a strong competitive positioning due to its large swaths of consumer data and industry-leading network. Furthermore, the stock price has remained relatively stagnant since its 2019 IPO, allowing the business to grow into its once-lofty valuation. Its enterprise value to forward revenue is a very reasonable 5.59x, though its enterprise value to 2022 EBITDA is less attractive at 68.38x.
Wall Street’s Take
From Wall Street analysts, UBER earns a Strong Buy analyst consensus based on 22 Buy ratings, 4 Hold ratings, and 0 Sell ratings in the past 3 months. Additionally, the average UBER price target of $72.36 puts the upside potential at 42.4%.
Summary and Conclusions
UBER is a leading rideshare and food delivery technology platform with tremendous growth potential ahead. While it is not yet profitable and currently looks expensive on an EBITDA basis, the stock seems much more attractively priced when viewed in light of its revenue and long-term growth prospects.
If the company can weather competitive challenges and maintain its strong growth trajectory, eventually profitability will catch up with its valuation and the stock could generate very strong long-term returns.
Given that analysts are so bullish on the stock, it might be an interesting speculative investment at current prices.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
