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Uber: $150 Per Share Is Not Unreasonable

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Uber Drivers Win Supreme Court Appeal To Be Considered Workers

In June of this year, an article titled “Uber: Revenue Could Double By 2026” discussed the potential for continued growth in Uber’s (NYSE:UBER) business. The article highlighted factors such as increasing user growth, cross-selling opportunities, and global brand awareness that could contribute to Uber’s success.

With the recent earnings report and positive developments, it is worth revisiting Uber’s stock to assess if our original thesis still stands.

Here’s the key takeaway: it does.

Catching You Up

In case you missed our earlier article, here’s a summary of our bullish thesis on Uber from June:

  • Massive growth opportunity: Uber has significant potential for growth in both developed and emerging markets through its mobility, delivery, and freight businesses.
  • Sticky product: Uber’s large and growing customer base of over 130 million monthly active platform customers creates a competitive advantage and supports platform ecosystem growth.
  • Surging free cash flows: Uber’s consistent free cash flow positivity indicates progress towards sustainable net income profitability.
  • Global growth: Uber’s international business is seeing rapid expansion, especially in emerging markets, driven by increasing demand and market entry into new regions and product categories.
  • Attractive valuation: Uber’s current valuation is relatively low compared to comparable platform companies, undervaluing its growth potential and cash flow generation capacity.

In summary, our thesis suggested that Uber’s sticky platform economics, combined with user growth, could result in doubling revenue within the next 3.5 years:

UBER

Based on recent events, it appears our thesis is on track.

User Growth

Uber released their Q2 earnings report last month, reporting $9.2 billion in revenue and 137 million monthly active platform customers. The company expects Q3 gross bookings to be between $34 and $35 billion.

Notably, Uber exceeded our expectations for monthly active platform customers, reaching 137 million with a year-over-year growth of 12%. This strong user growth provides ongoing monetization opportunities for the company:

UBER

Furthermore, the increase in user growth has resulted in a rise in gross bookings from Q1 to Q2, indicating continued acceleration in revenue:

UBER

Increased Take

While Uber did not see progress in terms of increased revenue per user (RPU) in Q2, there are promising developments in this area. Uber has several avenues to boost RPU, including:

  • Increased Cut: Uber has the potential to raise its take rate, although caution is needed to maintain ride/delivery supply.
  • Cross-Selling: Greater integration between Uber and Uber Eats has improved cross-selling opportunities, leading to increased bookings and revenue.
  • Monetizing Intent: Uber’s ad business is gaining traction, with $1 billion in on-platform ad spend projected for 2024. This adds high-margin revenue sources for the company.
  • High Margin Partnerships: Partnerships with travel brands through Uber’s “Travel” offering offer new revenue streams per user and enhance overall value.

While increasing the cut rate poses challenges, Uber’s progress in cross-selling, ad business expansion, and partnerships contributes to overall revenue growth potential.

The Price

Despite a positive outlook, Uber’s current stock price is trading at a discount compared to other premier platform companies. Uber has shown significant improvements in profitability, generating nearly $2 billion in free cash flow over the past 12 months with a margin of 12.85%:

UBER

We believe the market will recognize Uber’s profitability and future growth potential, leading to multiple growth. Considering this, and if Uber’s revenue doubles by 2026, the stock price could reach $150 per share:

UBER

Risks

Several risks should be considered. Regulatory challenges, such as worker classification disputes, could impose significant costs on Uber. Additionally, foreign regulations may limit the deployment of Uber’s profitable services in some regions.

Uber also faces challenges in achieving profitability in certain markets. Failure to improve profitability could impact overall profit per user and stock performance.

Lastly, macroeconomic factors could dampen growth and reduce demand for Uber’s services. However, given Uber’s current valuation, which reflects risk factors, this concern is relatively low.

Summary

All in all, Uber presents a classic growth story with a sticky platform, horizontal expansion opportunities, and a growing user base. As profitability improves, we expect the stock’s multiple to expand, potentially reaching a share price of $150 in the coming years.

Happy investing!

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