Incorporated in 2010 and headquartered in San Francisco, Uber Technologies Inc. (UBER) is the largest on-demand ridesharing company in the world. The mobility and delivery services provider has a presence in more than 80 countries across the world including the United States, Canada, Latin America, Europe, the Middle East and Asia (excluding China). The company went public in May 2019 at an IPO price of $45 per share, although since then, Uber shares have come under pressure for various reasons including the firm’s lack of profitability, regulatory conflicts, and the COVID-19-induced drop in mobility.
In addition to ridesharing services, Uber also offers meal delivery through Uber Eats, which was its saving grace at the height of 2020’s pandemic fears. The company further expanded the Uber Eats segment following the acquisition of Postmates in December of that year.
Despite many promising developments, Uber has failed to become profitable, which is the main reason behind the lackluster performance of it’s stock in the last couple of years. On May 16, the company unveiled several new features to penetrate new markets and grow, and these new features might help the company make progress toward achieving profitability in the future.
I am bullish on Uber as the company seems to have what it takes to dominate the multi-billion-dollar ridesharing industry in the long run, creating ample opportunities to become profitable.
New Products to Unlock Growth Opportunities
Uber unveiled a suite of new products and services at the Go/Get virtual event held on May 16. The new offerings are being introduced at the right time, with the final travel restrictions being lifted after two years of instability, as well as seasonal summer trends ramping up.
The company unveiled a charter transportation facility that allows a user to book a bus, passenger van, or a coach. The new initiative is brought to users through a partnership with U.S. Coach Ways, and will be launched across the U.S. by the upcoming summer. A trip itinerary feature was also launched, which provides for booking different rides for an extended journey, such as a vacation. Both these new features are categorized under the Uber Travel tab.
Users will be required to connect their Gmail accounts to the app to use the new feature to book rides for a specific segment of their journey. This feature also allows for alterations to the itinerary in case of an abrupt change of plans, as have become more common. Additionally, Uber Travel users will receive a 10% cash back for each reserved ride.
Moreover, Uber Eats has partnered with the MLB to provide delivery in select stadiums across the country. This will include large markets like Yankee Stadium in New York, Capital One Arena in Washington D.C., and Dodger Stadium in California.
In line with the company’s commitment to achieving the zero-emission target by 2040, Uber is launching an EV Hub for drivers to obtain information and compare the cost of ownership of an EV with a fossil fuel-powered vehicle. The Uber Comfort Electric option will be available for users who wish to ride in premium EVs, such as Tesla and Polestar, in selected cities including Los Angeles, San Francisco, San Diego, and Dubai.
The Long-Term Outlook is Promising
Uber’s business strategy is centered around dominating the global ridesharing industry, then later focusing on generating profits by leveraging its market-leading position. To achieve this objective, the company will have to continue sacrificing profits in the short run, which might not bode well with every investor.
Strategically, Uber is moving in the right direction by focusing on expanding its scale. The acquisition of Postmates to strengthen the Uber Eats segment, the acquisition of Drizzly Inc. to penetrate the alcohol delivery market, and the acquisition of Transplace to gain exposure to the freight industry are a few recent examples of how Uber is expanding its wings across the entire transportation spectrum.
According to Mordor Intelligence, the global ridesharing industry will grow at a stellar CAGR of 17.32% through 2026, giving leading companies in this space ample room to grow. Uber, in the long run, is likely to enjoy competitive advantages resulting from its scale and the network effect – a phenomenon where the value of the platform increases along with the number of users on the platform.
There are more than five million Uber drivers globally, substantially higher than any other ridesharing platform, and this scale will attract more riders and drivers to the platform in the coming years.
Wall Street’s Take
Based on the ratings of 27 Wall Street analysts offering 12-month price targets, the average Uber price target is $50.81, which implies upside of 117.6% from the current market price. The recent decline in the stock price has created a wide margin of safety when investing in Uber.
Takeaway
Uber is currently facing a few challenges, including intensifying competition in key markets, geopolitical tensions, and macroeconomic uncertainty. However, the company seems well-positioned to grow because of its massive scale and the innovative solutions unveiled recently to tap into new growth opportunities. If Uber can thwart the threat of competition in the long run, profits are likely to follow, and the stock price of the company could likely see upside as well.
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