I am neutral on Uber Technologies (UBER), as the company’s powerful competitive advantages, strong growth momentum, and overwhelming backing from Wall Street analysts are offset by the steep valuation multiple and weak profitability.
Uber Technologies, more commonly known as just Uber, is an American company offering mobility as a service, with operations spanning over 900 metropolitan areas around the world.
Strengths
Uber was founded in 2009 with the purpose of reducing the costs of direct transport. Currently, the company is operating in 69 countries around the world, with more than 101 million monthly active users.
Uber does not own any of its vehicles and makes profits through a 25% commission on each booking. Uber’s services also include ride-hailing, package deliveries, food delivery, freight transport, and even ferry transport.
Recent Results
As of the third quarter of 2021, Uber reported that its gross bookings grew by 57% as compared with the same period in the previous year, reaching a value of $23.1 billion. During the quarter, total trips grew by 39% compared to the previous year, with an average daily trip count of 18 million.
Additionally, total monthly active consumers grew from 78 million to 109 million, showing a 40% increase. Total revenue for the third quarter of 2021 was $4.8 billion, which was an increase of about 72% since the previous year or 69% on the basis of constant currency. The revenue increase was also due to the $123 million accrual release due to the resolution of claims in the UK relating to driver classification.
The company’s mobility take rate also saw an increase due to UK accrual release, as well as from tapering of elevated driver supply investment from the second quarter of the year.
Net loss for the company stands at $2.5 billion, including the $2 billion pre-tax headwinds from the revaluation of equity investments. Net loss also includes $281 million from expenses towards stock-based compensation.
EBITDA stands at $8 million, showing an improvement of $613 million from the same period last year. For the last quarter of the year, Uber expects gross bookings between $25 and $26 billion.
Valuation Metrics
Uber’s stock looks quite expensive at the moment, as its Enterprise Value is currently 91.90x forward EBITDA and its share price is 214.79x forward free cash flow. That said, the company is still growing rapidly, as revenue is expected to surge by 45.9% in 2022 and EBITDA is expected to increase by 284.2% in 2022.
Meanwhile, the company’s profitability is improving quickly as the company continues to scale. In 2019, the company generated $14.1 billion in revenue and had an EBITDA margin of -19.3%. Meanwhile, in 2022, Uber is expected to generate $24.8 billion in revenue and see its EBITDA margin improve to 6.1% (see UBER stock charts on TipRanks).
Wall Street’s Take
From Wall Street analysts, Uber earns a Strong Buy analyst consensus based on 19 Buy ratings, 1 Hold rating, and 0 Sell ratings in the past 3 months. Additionally, the average Uber price target of $69.75 puts the upside potential at 57.7%.
Summary and Conclusions
Uber is a rapidly growing company with a strong competitive advantage in the mobility industry, stemming from its vast network of drivers and customers. Furthermore, the company has collected a treasure trove of consumer data, giving it an edge in the emerging age of artificial intelligence, particularly as it pertains to mobility applications.
Meanwhile, the stock price has gotten more attractive in recent months thanks to a pullback. Wall Street analysts are overwhelmingly bullish on the shares here and the consensus price target implies massive upside over the next year.
That said, the company is only now becoming profitable and must grow at a significant clip for many years to come to justify the current valuation. As a result, investors might want to keep in mind that the stock remains speculative.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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