While investors don’t need to look far for signs of trouble on the horizon, ridesharing giant Uber Technologies (NYSE:UBER) might rise surprisingly due to young consumers’ travel trends. Specifically, the Generation Z age cohort prioritizes experiences over many other pursuits. Therefore, despite being short on funds relative to other age brackets, Gen Z’s ready to kick off the travel season. As a result, I am bullish on UBER stock.
“Revenge Travel” Sentiment Remains Robust
When COVID-19 first capsized society, many people naturally took comfort in home entertainment solutions along with other digital connectivity platforms. However, as social creatures, people instinctively wanted to experience “real” connections, not digital representations. Therefore, the concept of revenge travel or the intense desire to hit the road (and the friendly skies) to make up for lost time grabbed hold of consumers.
As jurisdictions gradually relaxed their pandemic mitigation protocols, travel demand boomed. However, even after the blistering inflation that sparked in earnest last year, the desire for travel remains robust. Fundamentally, that’s great news for UBER stock because the travel ecosystem features a wide supply chain, so to speak. From getting to and back and everything in between, ridesharing offers incredible relevancies.
Moreover, as a January 2019 report by the Pew Research Center demonstrated, more Americans are using ride-hailing services like Uber. Back then, 36% of U.S. adults say they have taken a ride through such services, compared to just 15% in late 2015. In addition, the increase in ride-sharing platform adoption increased for all age cohorts, including the 50+ demographic.
However, younger riders saw the most increase in adoption, which should augur very well for UBER stock. Essentially, young consumers may support the upcoming travel season.
Youthful Energy May Bolster UBER Stock
According to a recent CNBC report, which cited data from Morning Consult, more than half of American Gen Z adults are frequent travelers. And that’s true despite their youth and low income relative to older demographics. With a willing consumer base eager to open its wallet, UBER stock appears to be a compelling bullish idea.
Notably, Morning Consult states that Gen Z refuses to wait to attain high-paying jobs or build a savings nest egg. Instead, they want to travel, and they want to travel now. Frankly, such behaviors don’t really align with common-sense financial wisdom. Nevertheless, the dynamic should suit UBER stock just fine.
Another element that tips the scale in favor of the ride-sharing giant is that the platform speaks the universal Gen Z language — digitalization. Indeed, this is the first generation that grew up completely on the internet and with widespread mobile connectivity networks. Having no idea of an “analog” reality, Gen Z prefers digital interactions over true face-to-face communication.
Therefore, Uber benefits from organic relevance. With the platform, users don’t need to say anything to their drivers if they don’t want to. Better yet, should young people wish to travel abroad in non-English speaking countries, ridesharing becomes even more valuable.
Thanks to Uber, one can enjoy mobility wherever the platform is supported. Further, if problems arise, users can get support through the app, not through a foreign taxi-service provider.
A Risky Venture from a Financial Perspective
To be fair, while the fundamental narrative appears conducive to upside, UBER stock faces one major challenge — its financials. In particular, the underlying company faces a credibility challenge regarding a pathway to profitability. Year after year, Uber posts net losses, vexing longtime stakeholders.
In addition, its balance sheet doesn’t offer the greatest evidence of stability. Notably, Uber’s cash-to-debt ratio sits at 0.39, worse than 81.22% of sector peers. As well, its Altman Z-Score (a solvency metric) comes in at a lowly 0.25, indicating distress and a higher-than-normal probability of bankruptcy.
Nevertheless, the one shining positive is Uber’s three-year revenue-per-share growth rate of 15.7%, which ranks above 68.26% of sector players. Moreover, with Uber aggressively taking domestic and global market share, it may eventually outmuscle its rivals.
Is UBER Stock a Buy, According to Analysts?
Turning to Wall Street, UBER stock has a Strong Buy consensus rating based on 26 Buys, one Hold, and zero Sell ratings. The average UBER stock price target is $48.19, implying 62.9% upside potential.
Further supporting the bull case, on TipRanks, UBER stock has a 9 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
The Takeaway: Uber is Well Positioned for a Youthful Travel Boom
Although the consumer economy faces significant pressures, travel sentiment remains surprisingly strong. In particular, Gen Z consumers – despite their relative lack of income – desire to seek new experiences. Therefore, UBER stock already sits as a downwind beneficiary. Even better, the ridesharing platform speaks the language of digitalization, making its core users feel right at home.
