Uber: A Great Buy In Current Markets

Summary

• Uber’s stock is currently undervalued due to market fears surrounding autonomous vehicles, but its robust fundamentals and durable business model make it a highly appealing investment.

• Key strengths include an extensive urban mobility database, loyal user base, and diversified sources of revenue.

• While the rise of self-driving technology presents certain risks, Uber’s strategic alliances, regulatory challenges for competitors, and market dominance ensure it remains well-positioned for sustained growth.

• Even cautious revenue and margin projections suggest considerable upside potential, making Uber an attractive choice with a strong margin of safety.

  
  

The Impact of Market Narratives on Uber's Perception

Recent announcements have reignited interest in autonomous driving. Tesla (TSLA) revealed plans to launch the Cybercab by 2027, while Google’s Waymo (GOOGL) announced expansion into Miami. These updates have led to a nearly 10% drop in Uber’s stock, contributing to a 15% decline over the past month.

This situation is reminiscent of past market narratives that impacted companies like Google and Meta (META). Both experienced temporary valuation drops due to overblown concerns but ultimately delivered strong returns, supported by solid fundamentals and competent management.

Uber continues to showcase impressive operational growth, strong cash flow, and consistent profitability, all while trading at historically low P/E multiples. These attributes, combined with its moat-driven business model, position Uber as a promising portfolio addition.

Uber's Competitive Moats and the Importance of Strategic Management

Uber’s advantages go beyond its network effects. Its unmatched urban mobility database allows for optimized routing, pricing, and seamless connections between users and drivers. Additionally, features like loyalty programs, subscriptions, and brand trust further enhance its competitive position in a sector where reliability and safety are crucial.

Diversification is another critical element in reducing risk. Similar to Google’s evolution beyond search, Uber has created a multifaceted platform that includes logistics and transportation. Delivery accounted for 30% of revenue in Q3, while freight contributed 11%, generating $1.3 billion despite not yet achieving positive EBITDA margins. These emerging segments have the potential to become significant revenue drivers in the future.

Furthermore, Uber’s investments in companies like Grab (GRAB) and DiDi (OTCPK:DIDIY) reflect a strategic approach to balancing profitability and competition. These equity stakes act as a form of optionality while demonstrating Uber’s ability to focus on long-term gains in key regions.

Uber’s management has shown remarkable capability in adapting to industry changes. Much like Meta’s successful redirection of investments, Uber is already positioning itself for the adoption of autonomous vehicles. Partnerships with Waymo in Austin and Atlanta exemplify its ability to integrate self-driving technology while retaining its platform leadership.

Adapting to Regulations and Long-Term Mobility Trends

The adoption of self-driving vehicles faces significant hurdles, including regulatory and infrastructure challenges, particularly in emerging markets that are critical to Uber’s business. While major cities like Los Angeles and Miami may adopt autonomous technology sooner, broader implementation is likely to take years, especially in regions such as Brazil, India, and Mexico.

In addition, overarching trends in urban mobility—including cost savings, easing traffic congestion, and the shift from ownership to access—support Uber’s long-term growth. Although the global ride-hailing market is already substantial, it remains underpenetrated in numerous regions, providing opportunities for continued expansion.

Uber's Resilience Shines Even in Pessimistic Scenarios

While autonomous vehicles pose potential risks, competition from local apps and evolving regulations may present more immediate challenges to Uber’s margins and market share. Nonetheless, analysts project Uber’s EPS to reach $4 by 2027 and $4.80 by 2028, resulting in P/E multiples of 15x and 12.8x, respectively.

Even under conservative assumptions, Uber’s revenue could exceed $74 billion by 2030, with margins reaching 11.5%. In a more optimistic outlook, margins of 17% would result in a P/E multiple around 10x, equating to an earnings yield of 10%—a compelling figure for a leader in a growing market.

Uber’s forward P/E and free-cash-flow multiples of 21.9x remain attractive given its growth trajectory and low current valuations. With management forecasting strong EBITDA growth and robust free-cash-flow conversion, Uber offers significant upside even if its market valuation remains steady.

TLDR: Uber’s long-term outlook remains favorable despite concerns over disruption from self-driving technology. Its diversified operations, strategic investments, and adaptability effectively mitigate potential risks. At its current valuation, Uber represents a strong investment opportunity with substantial potential for long-term shareholder returns.

Price at Publication: $61.13