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Ride-sharing tech company Uber's (UBER) growth story has been nothing short of spectacular. From a disruptive start-up to a global icon, Uber has reshaped itself, highlighting its powers of innovation and adaptability. It doesn’t come as a surprise to see its stock up 150% so far this year, wildly outperforming the S&P 500 Index’s ($SPX) gain of 21%.
Uber: More Than Just Ridesharing
Founded in 2009, Uber made its humble beginning as a mode of transportation, and has since expanded to 70 countries covering 10,500 cities. With its seamless, mobile app-based solution, Uber aimed to connect riders directly with drivers. Its innovative approach to transportation resonated with users, leading to its rapid expansion into major cities across the globe. The simplicity of the app, coupled with competitive pricing and the promise of timely rides, propelled Uber into the mainstream.
Nonetheless, Uber did not stop at simply providing rides. With UberX, Uber Pool, Uber Freight, and Uber Eats, the company expanded into delivery and freight, catering to a variety of consumer needs and preferences. The strength of this business strategy is evident in its third-quarter results, which have encouraged Wall Street to be optimistic about its long-term potential.
Uber Rakes in Cash During Q3
What’s impressive is that Uber has increased its revenue from $10.4 billion in 2018 to $31.8 billion in 2022. And while Uber fell short of Wall Street's expectations in the third quarter, it still marked the company's second consecutive quarter of profit. Net earnings came in at $0.10 per share in Q3, compared to a loss of $0.61 in the year-ago quarter.
Uber’s total Q3 revenue jumped 11% year-over-year to $9.3 billion, missing the consensus estimate by $248 million. Total trips in the quarter also increased 25% to $2.4 billion, with a 21% jump in gross bookings from the year-ago quarter. Mobility and Delivery revenue, combined, increased to $8 billion - a 21% increase from the prior quarter, accounting for 96% of total revenue.
Through Uber One, which now has 15 million members, the company offers subscription services to members. Management stated during the Q3 earnings call that membership growth is a huge catalyst for growth at Uber.
The company also reported a massive increase in free cash flow to $905 million from $358 million in the prior year quarter. At the end of Q3, the total cash balance (cash, cash equivalents, and short-term investments) was $5.2 billion. While Uber’s debt-to-equity ratio is quite high at 1.17, rising free cash flow should assist the company in paying down its debts sooner.
Uber Outlook: 4Q and Beyond
Management expects gross bookings in the fourth quarter to land in the range of $36.5 billion to $37.5 billion, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) could arrive in the $1.18 billion and $1.24 billion range.
Looking ahead, analysts are hopeful Uber will end the year with another profitable quarter. For the upcoming fourth quarter, analysts estimate earnings per share of $0.16 on $9.77 billion in revenue. Furthermore, analysts predict Uber will continue its profit streak into 2024.
In 2024, earnings could grow by 204.6% to $1.15 per share, with revenue growth of around 15.6% to $42.93 billion. Priced at 3.0 times forward sales, which is lower than its historical average P/S ratio of 4.5, Uber is reasonably valued as a growth stock at current levels.
What Do Analysts Say About Uber Stock?
Following its solid third-quarter earnings, Uber became eligible for inclusion in the S&P 500 Index, solidifying its position as a high-quality growth stock.
According to William Blair analyst Ralph Schackart, “an addition to the S&P 500 can be a significant driver for a stock as it means that funds that passively track the S&P 500 will have to allocate funds toward Uber.”
Meanwhile, Oppenheimer analyst Jason Helfstein now expects Uber to “lean into growth and share buybacks, which should increase investor sentiment for growth/return in 2024.” Helfstein increased the target price for UBER to $75 from $65.
Overall, Wall Street remains bullish about Uber’s long-term prospects, rating it a "strong buy.” Of the 35 analysts covering UBER, 31 have a “strong buy” recommendation, three have a “moderate buy” rating, and one suggests a “hold.” As of this writing, Uber is trading nearly flat with analysts’ average price target of $61.94.
Potential Headwinds for Uber
A growing business is bound to face difficulties. Regulatory challenges, disagreements with traditional taxi services, and concerns about driver classification and safety have all put the company to the test. In November, the company reached an agreement on a wage theft investigation in New York. Uber, along with peer company Lyft (LYFT), will pay $328 million to drivers who were negatively impacted by both companies' alleged practices. Despite the challenges, Uber's resilience and adaptability have been remarkable.
Furthermore, Uber’s ambition extends beyond transportation. It plans to venture into autonomous vehicles, partnerships in the delivery space, and investments in innovative technologies to showcase its broader vision. While Uber will face stiff competition in the electric vehicle (EV) industry, I believe it will be able to succeed there as well.
The Key Takeaway
As Uber continues to innovate and expand its horizons, I believe there is enormous potential in the coming years. The company will most likely be able to maintain its profitability streak by increasing revenue through its diverse businesses. Based on analysts' growth forecasts, I believe Uber will be able to meet its high target price of $75, implying a 21% upside potential over the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
