Uber is attracting the attention of some uber-wealthy investors.
Uber (UBER 2.53%) has taken investors on a wild ride since its IPO on May 9, 2019. The mobility and delivery services company went public at $45, but its stock sank below that price on the first day and dropped to an all-time low of $14.82 on March 18, 2020.
At the time, Uber’s ridesharing business slowed to a crawl as more people stayed at home during the pandemic lockdowns. But if you had made a bold $250,000 investment in Uber at its all-time low, your investment would be worth nearly $1.2 million today.
Image source: Uber.
Uber’s stock bounced back as the pandemic headwinds dissipated. It expanded its food delivery business by acquiring Postmates in 2020, and it turned profitable in 2023 by exiting its weaker overseas markets and divesting its non-core divisions. But at its current price of about $71 and enterprise value of $153 billion, Uber’s stock still looks reasonably valued at 31 times forward earnings and 17 times next year’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
That might be why some billionaires have been loading up on Uber’s stock. In the second quarter of 2024, David Tepper increased his stake in Uber by 10% to 1.5 million shares, Ken Griffin beefed up his position by 179% to 2.65 million shares, and Daniel Loeb lifted his stake by 320% to 2.1 million shares. Let’s see why these billionaires are buying Uber — and why it could still generate millionaire-making gains for smaller retail investors.
Uber is still a high-growth company
Uber suffered a severe slowdown in 2020 as the pandemic-driven decline of its ridesharing business offset the robust growth of Uber Eats’ food delivery services. But over the following three years, its total trips, and gross bookings, surged again.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Trips Growth |
28% |
(27%) |
27% |
19% |
24% |
|
Gross Bookings Growth |
28% |
(11%) |
56% |
19% |
19% |
|
Revenue Growth |
37% |
(14%) |
57% |
49% |
17% |
Data source: Uber Technologies.
In the first nine months of 2024, Uber’s trips rose 20% year over year, its gross bookings increased 18%, and its total revenue grew 17%. For the full year, it expects its gross bookings to rise 17% to 18%, while analysts expect its revenue to grow 17%. In comparison, analysts expect Lyft‘s (LYFT 1.12%) revenue to grow 32% this year, but it’s still unprofitable and a lot smaller than Uber.
Uber’s recent growth was mainly driven by Uber One, which grew 70% year over year to over 25 million members in the third quarter of 2024; its new Uber Teens platform, which allows parents to authorize rides and deliveries for their teenage children; and the steady expansion of its enterprise and healthcare delivery businesses.
Its disciplined cost-cutting measures are paying off
Over the past few years, Uber sold its lower-margin overseas platforms in China, Southeast Asia, and Russia. It also divested its advanced technologies group (ATG), which developed its driverless vehicles and drones. But instead of completely exiting those higher-growth markets, it retained equity stakes in most of those companies.
To further cut costs, Uber downsized its freight and recruitment divisions, shut down weaker businesses like its Carshare platform in Australia and its Drizly alcohol delivery service, and executed several rounds of layoffs. Even as it aggressively slimmed down its business, its take rates (the percentage of each booking it retains as revenue) improved as its scale and pricing power enabled it to raise its ride and delivery fees.
That mix of robust top-line growth, tighter spending, and strong pricing power helped Uber finally turn profitable on a generally accepted accounting principles (GAAP) basis in 2023. From 2024, analysts expect its net income to more than double on a GAAP basis as its adjusted EBITDA increases 60%. In comparison, Lyft is expected to stay unprofitable on a GAAP basis this year as its adjusted EBITDA grows 67%.
It could still generate millionaire-making gains
Uber still faces regulatory challenges and demands for higher wages in many of its top markets, and that pressure could squeeze its near-term margins and throttle its bottom-line growth. But Uber has weathered plenty of those headwinds before, and it could keep growing for the foreseeable future as it dominates the digital mobility and delivery service markets. Assuming Uber maintains its current valuations, matches analysts’ expectations through 2026, and grows its adjusted EBITDA at a compound annual growth rate (CAGR) of 20% over the following 14 years, its enterprise value could swell to $2.38 trillion by 2040.
Such a scenario would equate to an 18-bagger gain from its current enterprise value of $153 billion, potentially transforming a $60,000 investment into over $1 million. So while the uber-wealthy billionaires are flocking to Uber, it’s still a potential millionaire-maker for the rest of us.