To The Moon

After rebounding somewhat, the benchmark $S&P 500(.SPX)$ fell last week and was down 14% from its February record high. Volatility levels moderated from five-year peaks but remain elevated by historic measures.

Considering the different perceptions of the stock, this week TigerPicks chose $Uber(UBER)$ to have a fundamental highlight to help users understand it better.

$Uber(UBER)$

Uber Technologies, Inc. is a global technology company that provides ride-hailing, food delivery, and freight transportation services via its platforms. Uber is expected to report Q1 2025 numbers in the first week of May'25.

After turning profitable in 2023, Uber has shown consistent scaled growth that led to a rally in share prices till early 2024. Market action has been subdued since, as the market watches out for clues on the next move - and the quarterly results should well have some pointers.

Becoming Profitable

What Uber did well after this breakthrough from macro tailwinds, was maintain a reasonable growth rate for the next few quarters. In 2024, Uber continued its upward move both in terms of revenue and operating profit. Stock prices mirrored this journey as Uber continued to show its ability to hold on to the growth levels at scale. Stock prices again gave a handsome ~80% return till about Q1 2024.

Revenue Growth - Uber

As the chart above shows, Q4 2024 did show a ~10% Q-o-Q jump in revenues. Let us look for early green shoots to see whether this revenue uptick has enough to pull stock prices upwards again after stagnation.

Share prices did revert back to $80 around the Q4 results (gaining back ~33%). But have again paused around the last one year average of $75. The reason for this recap is to recall the long term waves already past and priced in with significant moves in UBER. Even the recent high of Q4 2024 led to a sharp recovery.

The fear of heights arises from the history of significant upmoves - it almost looks like Uber has already priced in all good reasons to invest. In that context, is the recent lull an opportunity or should we be concerned?

Macro Risks and Slowdown Concerns

I think markets are pricing in the drop in discretionary spending as the economy braces for a slowdown and tariffs start impacting consumer behavior. Q1 2025 may still report good numbers, but the path ahead remains uncertain.

The tariff threat is certainly not impacting Uber directly on imports or production. There is no direct bearing on Uber’s balance sheet or income statement. However, costs will become higher for drivers. May lead to service quality drop, or even higher costs to customers who will be cutting down on discretionary spends anyway. The freight segment may remain exposed completely to shipping activity changes.

Capability to Back Valuation

As Uber shares price in the downturn, how have valuations travelled? After the initial trailing 12 month PE expansion around and beyond 100, trailing PE has largely climbed down consistently to ~15 throughout 2024. These are early days after turning profitable, so assume settling period for the valuation multiples. The forward PE of 30 is still expensive, compare this to $Lyft, Inc.(LYFT)$ whose forward PE multiple is 10.

To understand what the premium valuation of Uber expects, let us look at the rapid strides and capability development happening at Uber. Eventually, it will boil down to how much of the potential vs valuation balances out.

Total addressable market of the mobility leg is secure with lots of room left for expansion.

TAM - Uber Mobility

Uber’s offering is beyond its competitors’ passenger ground transportation offerings. The eco system lock-in via Uber One is showing up well and expanding since 2021. The multi product consumer spend growth per se is not exciting, although growth in number of multi product customers is. This Uber’s compounding offering benefits over other ridesharing competitors (single product vs multi).

Eco system at play - Uber

Cross promotion benefits helps customer acquisition costs as well (Uber has proven that with revenue growth in 2024 at similar cost bases). As a first mover in the diversified logistics space, Uber has done well to drive in customer lock-in through the Uber One program.

The starter advantage is a self fueling cycle for the future, as more data means more AI enhanced solutions to work on – be it pricing, risk and safety, queuing, routing or even languages. Advertisements are also likely to deliver compounding revenues in the future. Advertisements are particularly an exciting prospect in tech retail where data leads to personalized targeting opportunities.

Autonomous offerings is another key area where Uber has partnered with AV only operators like Waymo. These partnerships are seeing good traction and is a huge bet for the future.

Risks

Risks of rising prices to the customer or lower discretionary spends could decouple the ecosystem lock-in. In such cases, stiff competition exists, particularly in mobility – a key driving segment for Uber. Driver base expansion (75% up between Jan 22 to Dec 24), which supported the growth leg, may also drop off as tariff pressures will impact them directly.

Long Term Bullish but Hold

In the short term i.e. 2025, a threat of a decrease in earnings is expected. This is backed by analyst estimates and will be due to higher indirect input costs (such as fuel, car maintenance impacting driver payout margin increases) and revenue drops in case of higher costs to customer or lower discretionary spending.

I believe, Uber will be able to wade through any incoming crisis without having to let go of the ecosystem lock-in, which is key. That should place Uber for decent long term (three-year) gains. Investors are likely to see share prices at lower levels in the short term. Better entry points can be found as valuation multiple as well as earnings will either stagnate or drag prices down. Hold Uber. Fresh investors wait for a better deal.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 33 Wall Street analysts offering 12 month price targets for Uber Technologies in the last 3 months. The average price target is $90.30 with a high forecast of $115.00 and a low forecast of $80.00. The average price target represents a 20.02% change from the last price of $75.24.

Resource:

https://seekingalpha.com/article/4776220-uber-ecosystem-bet-scaling-strong-but-time-to-wait

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