Four compelling reasons to invest in Uber shares without hesitation right now
Uber Technologies (UBER -0.70%) and its advanced mobility service platform entered the public market in 2019 at approximately $45 per share. At that time, the company had an annual operating loss surpassing $4 billion. Fast forward to today, Uber's share price has risen to around $60. However, what's truly remarkable is the company's shift to an operating income of $2.7 billion last year.
The narrative of free-cash-flow (FCF) mirrors this transformation. From burning around $4 billion annually in its initial phase as a publicly traded company, Uber has now switched to generating approximately $6 billion in FCF over the past 12 months.
Given Uber's five-year transition from a young, billion-dollar startup to a more established and profitable entity, while only seeing a modest increase in share price, now could be an ideal opportunity to invest in this revamped business.
Here's why you might still want to consider purchasing this promising growth stock:
1. Uber leads an up-and-coming sector
Uber's leading network connects its 161 million monthly active platform users with its almost 8 million drivers and an expanding fleet of autonomous vehicles. Whether facilitating transportation of people, groceries, or freight, Uber's extensive platform offers mobility options for over 10,000 cities worldwide, resulting in 31 million trips daily.
Thanks to its widespread usage, Uber's mobility division currently holds a commanding 75% market share in the United States, and a leading 25% globally, for the ride-sharing niche. Meanwhile, Uber Eats, Uber's delivery segment, holds a 23% share of the meal delivery market, making it the clear No. 2 provider in the U.S., just behind DoorDash's 67% share.
With the ride-sharing and food delivery industries forecasted to grow at a mid-double-digit rate for several years in the U.S., and potentially even quicker internationally, Uber should prosper due to its standing as the industry's undisputed leader.
2. Uber boasts a strong brand image
The reason I'm hopeful about Uber continuing its lead in the industry is its well-known brand. Uber recently ranked 61st on Kantar BrandZ's 2024 Most Valuable Global Brands list, jumping 35 spots from its position at 96 the previous year. Kantar BrandZ compiles its rankings by combining a brand's economic and financial value with its value to consumers and business decision-makers through various studies and reports.
The significance of Uber landing on this list stems from the fact that stock prices linked to Kantar's top 100 list each year have outperformed the S&P 500 since 2006 (312% growth for the S&P 500 compared to 400% for Top 100 brands and 441% for Top 10 prominent brands).
Similarly, Comparably's Top 100 Global Brands list evaluates how consumers perceive a brand's quality, and it placed Uber 90th on its rankings. Thanks to the global recognition and overall customer satisfaction embedded in Uber's brand, I believe the company is digging a wider moat around its operations, insulating itself from new competitors.
3. Uber is witnessing improving margins and cash flow
Although Uber no longer records triple-digit revenue growth rates, as it did momentarily in 2022, its margin improvement and enhanced cash flow have been noteworthy. As Uber's extensive two-sided network continued to expand -- and grew smarter thanks to the data generated from every journey served -- the company's operating and FCF margins shifted from deeply negative to positive.
Even after accounting for stock-based compensation, Uber now boasts a healthy FCF margin of 10% and has swiftly transformed into a cash machine.
This could merely be the start.
Now boasting 25 million Uber One members, a figure that soared by 70% from last year, Uber's membership program generates high-margin, consistent cash flows.
The Uber One program is similar to Amazon's Prime offering or Costco Wholesale's membership. These programs provide lower prices and additional incentives for members in exchange for greater customer loyalty and increased spending. Uber's new members have proven to be highly valuable to the company, spending 4 times more than non-members while already accounting for 40% of the company's bookings.
On top of this, Uber's high-margin advertising continues to thrive, increasing by 80% in the last quarter and achieving a $1 billion run rate in 2024.
Partially due to these emerging high-margin products, management believes FCF will grow between 30% and 40% over the next three years, indicating that even better times may be still ahead.
4. Uber maintains a reasonable valuation
Despite being the industry leader, having the most recognized brand, and being the most profitable company in its niche, Uber's valuation remains relatively reasonable.
In contrast to its peers, Uber's price-to-sales (P/S) ratio is the lowest in the group, other than Lyft, which has yet to record an operating profit.
Furthermore, Uber's FCF yield of 3.2% (after subtracting stock-based compensation) matches the average of the S&P 500. Analysts anticipate Uber to increase sales by 16% in 2025, surpassing the S&P 500's long-term averages, implying that Uber trades at a discounted valuation.
Despite a 30% decrease in the company's shares from their peak, following market concerns over Waymo teaming up with Moove rather than Uber once more to enter Miami's market, I find these worries to be exaggerated. With Uber holding a partnership contract and ownership shares in Moove, as well as board seats, the company is hardly being disregarded by any stretch.
In the end, these four compelling factors, coupled with the current reduced share price, make Uber an alluring proposition for investors seeking to combine lofty growth prospects with strong cash flow generation.
- With Uber's strong financial performance and promising future, investors looking for a balance between growth and cash flow might consider allocating their funds to this company, given its reasonable valuation compared to its peers.
- Uber's success in transitioning from an annual operating loss surpassing $4 billion to generating approximately $6 billion in FCF over the past 12 months, along with its competitive advantages in the ride-sharing and meal delivery markets, signifies that this is an opportune time for investors to consider investing in this finance-driven company.
