Bill Ackman Makes Waves with Major Investment in Uber

Billionaire Bill Ackman, CEO of Pershing Square Capital Management, is recognized for his focus on profitable consumer stocks and his bold investment strategies. In 2016, he took a contrarian approach by investing in Chipotle Mexican Grill during its E. coli crisis—a move that has yielded a remarkable return of around 600% since his initial purchase.

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Recently, Ackman has also made a significant investment in Nike and holds considerable shares in Hilton Worldwide and Restaurant Brands International, which oversees Burger King, Tim Horton’s, and Popeyes. Unlike many hedge fund managers who manage various investments, Ackman maintains a concentrated portfolio, making his acquisitions noteworthy.

On Friday, Ackman announced on X that he had begun acquiring shares of Uber Technologies (NYSE: UBER) in January, amassing 30.3 million shares. Following his tweet, Uber’s stock surged by 6.6%, bringing Pershing Square’s stake to approximately $2.26 billion.

Ackman praised Uber CEO Dara Khosrowshahi for his effective leadership since taking charge in 2017, noting the company’s transformation into a “highly profitable and cash-generative growth machine.” He described Uber as “one of the best managed and highest quality businesses in the world” and emphasized its significant discount to its intrinsic value.

Image source: Uber.

Uber’s Remarkable Turnaround

Ackman’s assessment of Uber aligns with the company’s recent improvements. After a series of scandals leading up to its 2019 initial public offering, including the viral #DeleteUber campaign in 2017 that boosted its competitor Lyft, Uber struggled financially post-IPO, initially failing to generate profits. The COVID-19 pandemic further affected its performance as ride-sharing demand dwindled.

Determined to pivot towards profitability, Uber’s management took significant actions, including divesting underperforming operations and exiting markets where it was not a leading player. They also restructured high-cost ventures in self-driving cars and air taxis and reduced rider and driver incentives that previously led to unsustainable losses.

These strategic changes paid off, marking 2023 as Uber’s first profitable year, and the company continued to thrive into 2024.

In 2024, gross bookings surged by 18% to reach $162.8 billion, propelling revenues to $44 billion. GAAP operating income increased more than twice to $2.8 billion, while free cash flow approached $7 billion. These indicators reflect a strong and thriving business, contrasting sharply with its past performance.

In its fourth-quarter report released on Wednesday, Uber exceeded financial expectations, projecting continued growth for the first quarter with gross bookings estimated to rise between 17% and 21%. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to see a 30% to 37% increase.

Membership in Uber One—a loyalty program providing discounts and perks—grew by 60% in 2024 to 30 million members, offering Uber a steady revenue stream and reinforcing customer loyalty.

Is Uber a Worthy Investment?

Uber’s financial metrics are impressive, with its stock trading at a forward price-to-earnings (P/E) ratio of 30, suggesting it is reasonably valued. However, external factors pose risks; advancements in autonomous vehicle technology might disrupt the ride-sharing market. Tesla plans to launch an autonomous ride-sharing service, and Alphabet is expanding its Waymo service.

Uber’s stock has been sensitive to developments from Tesla, and future news related to autonomous vehicles will likely continue to influence its stock price. Nevertheless, partnerships with companies like Waymo, Volvo, and Nuro aim to integrate autonomous technology into Uber’s model, suggesting a forward-thinking strategy. While the full transition to autonomous vehicles may take decades, Uber’s business model appears secure for now. Investors should remain aware of these developments while considering Uber’s consistent growth, profitability, and reasonable valuation as solid indicators for investment.

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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board. Jeremy Bowman holds positions in Chipotle Mexican Grill and Nike. The Motley Fool has equity positions in and recommends Alphabet, Chipotle Mexican Grill, Nike, Tesla, and Uber Technologies. The Motley Fool recommends Restaurant Brands International and has a disclosure policy regarding options associated with Chipotle Mexican Grill.

The views expressed in this article are those of the author and do not necessarily reflect the views of Nasdaq, Inc.