I am neutral on Uber Technologies (UBER), as the company’s strong competitive advantages, strong growth momentum, and overwhelming support from Wall Street analysts are outweighed by the high valuation multiple and low profitability.
Uber Technologies, more commonly known as Uber, is an American company providing mobility as a service, with operations covering more than 900 metropolitan areas around the world.
Strengths
Uber was founded in 2009 with the aim of reducing direct transportation costs. Currently, the company operates in 69 countries around the world, with more than 101 million monthly active users.
Uber does not own any of its vehicles and makes a profit with a 25% commission on every booking. Uber’s services also include ridesharing, parcel delivery, food delivery, freight transportation, and even ferry transportation.
Recent results
In the third quarter of 2021, Uber reported that its gross bookings were up 57% from the same period a year earlier, reaching a value of $ 23.1 billion. During the quarter, the total number of trips increased by 39% compared to the previous year, with an average number of daily trips of 18 million.
In addition, the total number of monthly active consumers rose from 78 million to 109 million, an increase of 40%. Total revenue for the third quarter of 2021 was $ 4.8 billion, an increase of about 72% over the previous year or 69% based on a constant exchange rate. The increase in revenue is also due to the release of $ 123 million in accruals due to the resolution of complaints in the UK regarding the classification of drivers.
The company’s mobility utilization rate has also seen an increase due to the publication of entitlement entitlements in the UK, as well as the decrease in high investment in the supply of drivers from the second quarter of the year.
The company’s net loss was $ 2.5 billion, including the $ 2 billion pre-tax unfavorable result from the revaluation of equity investments. The net loss also includes $ 281 million in stock-based compensation expenses.
EBITDA amounted to $ 8 million, an improvement of $ 613 million compared to the same period last year. For the last quarter of the year, Uber expects gross bookings of between $ 25 billion and $ 26 billion.
Assessment measures
Uber’s stock looks quite expensive at the moment, as its enterprise value is currently 91.90 times forward EBITDA and its share price is 214.79 times forward free cash flow. . That said, the company continues to grow rapidly as revenue is expected to increase 45.9% in 2022 and EBITDA is expected to increase 284.2% in 2022.
Meanwhile, the profitability of the business improves rapidly as the business continues to grow. In 2019, the company generated revenue of $ 14.1 billion and 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).
The Taking of Wall Street
From Wall Street analysts, Uber gets a strong buy analyst consensus based on 19 buy ratings, 1 hold rating and 0 sell rating over the past 3 months. Additionally, the Uber average price target of $ 69.75 places the upside potential at 57.7%.
Summary and conclusions
Uber is a rapidly growing company with a strong competitive advantage in the mobility industry, resulting from its extensive network of drivers and customers. Additionally, the company has collected a treasure trove of consumer data, giving it an edge in the emerging era of artificial intelligence, especially when it comes to mobility applications.
Meanwhile, the share price has become more attractive in recent months thanks to a pullback. Wall Street analysts are extremely bullish on the stocks here, and the consensus price target implies a massive hike over the next year.
Having said that, the company is only becoming profitable now and has to grow at a significant rate for many years 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 does not have a position in any of the titles mentioned in this article.
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