Certain companies have become ubiquitous in everyday life, to the extent that new verbs are invented with their names, like “google it” or “ChatGPT it”, or “why don’t you just Uber?”.
Many people have used Uber; some use it every day, especially in big cities.
Consider the following:
- Uber is available in more than 10,000 cities;
- Uber will make 14-billion trips in the next 12 months;
- Uber has 180-million active monthly users; and
- Uber has 8.8-million drivers.
Its gross bookings exceeded $130bn in 2024. This is the total income before driver and restaurant payments.
It has more than $7bn in cash and holds significant investments in many companies. Its investment portfolio amounts to several billion dollars.
And it has strong operational execution and a dominant market share in the mobility and delivery segments. Uber leads with a 74% share of the ride-sharing market in the US. Of the food delivery platforms, Uber Eats has a 24% market share.
There are several key growth drivers (no pun intended). Uber’s market dominance is a powerful moat, attracting more drivers and more customers, which leads to a further strengthening of the platform.
The delivery segment has achieved breakeven and is growing rapidly. Margins continue to expand.
An important factor is the management of the transition to autonomous, or driverless, vehicles. Remember that Uber’s biggest cost is driver salaries. There is serious blue-sky potential if these costs can be reduced.
Uber is a great beneficiary of AI as the gap between what users are prepared to pay and what drivers are prepared to accept lends itself to special algorithms which dramatically improve profitability.
Uber’s sustained profitability and free cash flow cannot be overemphasised. It is also embarking on one of the largest share buyback programmes on the market. This means the shares are becoming a “collector’s item”.
The group’s pivot to sustained cash generation and profitability sets up a new and compelling investment proposition, but the market is still not correctly valuing its operational leverage and enormous scaling opportunities. Furthermore, the PEG ratio (p:e divided by the rate of compound growth) suggests the shares are substantially undervalued.
Counterbalancing all the positives, investors must weigh regulatory risks and inherent labour risks
There are regulatory risks, but the company has a dominant market position and its total addressable market is constantly expanding. Hardly a week goes by without some new service being added to the Uber and Uber Eats apps. On-demand logistics remains a great investment theme and opportunity.
The group’s revenue and gross bookings continue to grow in the mid-teens year over year, operating income is positive and the company will benefit from incremental margin increases across mobility and delivery.
Counterbalancing all the positives, investors must weigh regulatory risks and inherent labour risks, competition and valuation sensitivity relating to geopolitical risks and macro growth expectations.
The business model and economics are supported by high incremental margins, and once fixed costs are exceeded, the increased revenue will drop straight to the bottom line. Uber is constantly diversifying and expanding its many and various revenue lines. Delivery, advertising and enterprise mobility, and joint ventures with car manufacturers, are obviously important areas of growth. The company has incredible data, which lends itself to special AI algorithms with ETA predictions and dynamic pricing, adding enormous cash flow advantages.
The business is really all based on special software and is capital-light. This reduces capital expenditure intensity as compared with asset-heavy transport companies.
Looking ahead, the growth drivers remain continued urbanisation, instant gratification trends and on-demand consumption. International expansion in underpenetrated markets will result in continued top-line revenue growth. Advertising, subscription bundles and Uber for business are growing revenue per monthly active user. Management highlights the benefits of intelligent pricing and improved routing efficiency, which increase the monthly number of trips per user; this is an element of future margin expansion.
Overall, Uber shares look undervalued and underappreciated by the market and should be bought at these levels. As usual, caution is advised and regulatory risks and competition must be carefully monitored.
It might be prudent to establish and control risks by adding the correct weighting to your portfolio and considering profit-taking levels and stop losses. With these in place, Uber could be a great long-term investment opportunity.
Meyer is the founder of Fenestra Asset Management
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