In previous articles, the bullish sentiment on Uber (NYSE:UBER), the American technology firm that’s disrupting global mobility & delivery infrastructure, was made evident.
Back in June of 2023, the initial article titled, “Uber: Revenue Could Double By 2026” was published, revealing a belief that Uber’s platform appeared sticky, with management showing potential in cross-monetizing its growing userbase, which could lead to significant continued top-line growth.
In September, a follow-up article, “Uber: $150 Per Share Is Not Unreasonable,” raised the core question pondering the potential worth of the company in a bullish scenario, arriving at an approximate value of $150 per share.
Since the articles, Uber is up by 50% and 38%, respectively. With another earnings report and a significant rally under its belt, a further examination of the stock’s compelling nature was warranted, even with a significantly higher nominal price.
Shall we proceed?
Uber’s Financial Results
As always, let’s begin with the financial results.
In November of 2023, Uber released its Q3 results, which, to some, appeared to be a miss, with EPS and top-line numbers both coming in below expectations. However, the focus on Monthly Active Platform Customers (MAPC) remained pivotal as it’s a key driver for Uber’s revenue trajectory. Uber exceeded expectations, presently boasting 142 million users on the platform, ahead of the Q3 optimistic projection of 140 million. Although quarterly Revenue Per User (RPU) experienced a slight drop, operating income reached a new high at $394 million in Q3, signaling the company’s positive income trends and the growth of trips faster than MAPCs YoY, which supports the sticky nature of Uber’s platform.
In addition, the product teams are still shipping, with continued growth in MAPCs and robust user retention, indicating strong profits being generated on a consistent basis for the first time.
Overall, not a bad quarter!
Momentum & Valuation
Here’s where it gets interesting.
Since October 26th, Uber’s stock has gone
Uber’s Stock Rally: A Retort to Selling Pressure
Uber has been on a remarkable run, surging more than 53% in just 51 trading days, catapulting from $40 per share to over $62. This bullish streak has defied the sluggishness the stock has displayed for some time.
Although many voices are urging investors to cash out during this impressive upswing, this insistence seems to be clouded by what we would call an “anchor bias.” The stock’s prolonged trading within the $20 to $40 range has led some to believe that this surge is a prime opportunity to sell.
Yet, a broader view reveals an intriguing possibility; it appears that Uber is poised for a potential breakthrough. With previous all-time highs at $64.05, surpassing this level would be not just a milestone but a highly encouraging sign from a technical standpoint.
Furthermore, there is a question of whether investors are undervaluing Uber. With careful analysis, it becomes evident that $150 per share is a realistic target, given the company’s current growth trajectory and financial performance.
Uber’s top line multiple remains below 4x, a conservative valuation for a company in the platform tech sector. With sustained operating income profitability and a resilient business model, the case for a higher valuation becomes compelling.
It’s true that the stock is currently overbought, posing a short-term concern. However, a potential pullback followed by a breakout above the highs could signify a paradigm shift, where investors ascribe a higher multiple to Uber’s robust business model.
In our assessment, there is significant potential for the stock to attain a higher valuation and maintain upward momentum. While the lack of direct competitors makes comparisons challenging, Uber’s solid market position and positive net income indicate room for growth into a more premium valuation.
The Balancing Act of Growth and Risk
Amidst the clamor for profit-taking due to the recent price surge, it is our belief that there is still substantial upside potential in the stock. However, the risks should not be overlooked.
A pivotal risk lies in Uber’s ability to enhance its revenue per user (RPU) over time. While the company has excelled in user acquisition, the crux of the bullish thesis hinges on achieving an RPU in the mid 80s. If Uber falters in this aspect, the current elevated multiple would be unsustainable, potentially triggering a downturn in the stock.
Although other risks exist, they seem subsidiary. Our view is that managing growth and valuation is the crux, and if Uber can strike this balance, the potential rewards outweigh the associated risks.
The Verdict: Still a “Strong Buy”
Despite calls to lock in gains amidst Uber’s formidable rally, we maintain that there is ample upside for investors, especially if the stock breaches the significant $64.05 level. With our long-term price target at approximately $150, any pullbacks before new highs, or any new highs, present a compelling entry point into a stock that continues to expand its user base, platform utility, and overall profitability.
In conclusion, our rating for Uber remains a “Strong Buy.”
Cheers!
