Uber’s Impressive Transformation: A Look at Growth and Investment Potential

Uber Technologies (NYSE: UBER) made its debut as a public company in 2019, launching with a share price near $45. At that time, it faced an annual operating loss of over $4 billion. Fast forward to today, and Uber’s shares have climbed to approximately $60. More significantly, the company achieved an operating income of $2.7 billion last year.

The story of Uber’s financial journey is underscored by its free-cash-flow (FCF) evolution. Initially, the company reported a cash burn of around $4 billion yearly, but it has successfully transitioned to generating $6 billion in FCF over the past 12 months.

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Thanks to a substantial five-year shift from a start-up to a profitable business, and with only a marginal increase in stock price, many investors may see this as an opportune moment to buy into Uber’s evolved operations.

Here are four compelling reasons why investing in this growth stock still seems promising.

1. Uber’s Dominance in a Growing Industry

As a leader in the mobility sector, Uber connects 161 million monthly active users with nearly 8 million drivers and an expanding fleet of autonomous vehicles. Whether transporting people, groceries, or freight, Uber’s vast platform caters to over 10,000 cities globally, resulting in 31 million trips each day.

Currently, Uber commands a noteworthy 75% market share in the U.S. ride-sharing sector and a significant 25% share internationally. Its meal delivery service, Uber Eats, holds a 23% share of that market, positioning it behind DoorDash, which leads with a 67% share.

As the ride-sharing and food delivery sectors forecast mid-double-digit growth in the U.S., Uber’s position as a market leader should allow it to prosper.

Image source: Getty Images.

2. A Strong Brand Presence

My confidence in Uber’s ongoing leadership stems from its powerful and recognizable brand. Recently, Uber ranked 61st on Kantar BrandZ’s 2024 Most Valuable Global Brands list, an impressive jump from its previous position at 96 last year. This ranking method combines a brand’s economic value with its perceived worth among consumers and business leaders.

This recognition is vital because stocks from Kantar’s top 100 list have regularly outperformed the S&P 500 since 2006, delivering 400% growth, while the S&P saw 312% and the top 10 brands hit 441%.

Uber also earned the 90th spot on Comparably’s Top 100 Global Brands list, demonstrating strong customer perceptions of quality. It seems that Uber is steadily enhancing its competitive edge against new players in the market.

3. Improving Margins and Cash Flow

Although Uber is no longer showcasing triple-digit revenue growth like it did briefly in 2022, the improvements in its margins and cash flow are noteworthy. As Uber expanded its vast network and enhanced its use of trip data, it reversed its negative operating and FCF margins into positive territory.

UBER Operating Margin (TTM) data by YCharts

Despite stock-based compensation, Uber now boasts a healthy FCF margin of 10%, indicating its transformation into a strong cash generator.

The company now has 25 million Uber One members, a 70% increase from the previous year, contributing reliable cash flow through its membership program, akin to offerings from Amazon Prime and Costco Wholesale. Members typically spend four times more than non-members, representing 40% of Uber’s bookings.

Additionally, Uber’s advertising revenue has surged by 80% in the last quarter, aiming for a $1 billion run rate in 2024.

Thanks to these flourishing high-margin initiatives, management anticipates FCF growth of 30% to 40% over the next three years, suggesting that Uber’s best days are still ahead.

4. Reasonable Valuation

Even as the leading player in its sector, Uber’s stock valuation is surprisingly reasonable.

UBER CART DASH LYFT PS Ratio data by YCharts

Compared with peers, Uber’s price-to-sales (P/S) ratio is the lowest, excluding Lyft, which hasn’t yet produced an operating profit.

Uber’s FCF yield of 3.2% (after adjusting for stock-based compensation) matches the average for the S&P 500. Analysts expect Uber’s sales to expand by 16% in 2025, surpassing the long-term forecast for the S&P 500, indicating a potentially discounted valuation.

Despite a 30% decline from its peak triggered by concerns over a partnership between Waymo and Moove instead of Uber in Miami, I believe these concerns are overblown. Uber maintains a partnership agreement and equity stake in Moove, along with board representation, ensuring it remains connected within the industry.

Ultimately, these four factors, combined with the recent drop in the stock price, present Uber as an enticing investment for those seeking robust growth alongside reliable cash flow.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Josh Kohn-Lindquist has positions in Costco Wholesale and Uber Technologies. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, DoorDash, and Uber Technologies. The Motley Fool recommends Instacart. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.