Uber Technologies has been one of the most revolutionary companies of the last decade. With its innovative ride-sharing platform, Uber has revolutionized how people travel from one place to another and spearheaded the “gig” economy. But as Buffett famously said great technologies don’t always translate to great investments. And so far, that seems to be the case for Uber.
When the company IPO’d in 2019, the share price opened at $45 per share. Since then, the rideshare company’s stock has seen a decrease in price by over 40%. Now with the economy slowly recovering and passengers more willing to share a confined space with a stranger/driver, many are wondering whether Uber’s stock can make a comeback.
Let’s take a closer look at why now could be an opportune time to buy Uber shares and why this may be a stock primed for growth when the next bull market arrives.
Uber’s Positioning and Strategy
Uber boasts an incredible record since its IPO. Unfortunately, it is not a record that they wish to claim. Uber went from being valued at $120 billion to around $69 billion, the largest first-day dollar loss in US history.
And while Uber got off to a less-than-stellar start, the company has positioned itself for long-term success. Uber operates a fungible good, meaning its product is interchangeable with similar services. Companies such as Lyft compete vigorously with it. And because differentiation is challenging, the primary strategy for growth is to drive down the cost, which in turn hurts margins.
Despite operating a business with minimal customer loyalty and low barriers to switching services, Uber has been focusing on broad expansion – you can grab an Uber in Dar es Salaam, Tanzania, for example – and claiming as much market share as possible. Uber currently commands a 71% share of sales in the rideshare industry in the United States and has a presence in over eighty countries.
While profitability has been challenging for the ride-sharing company, it is seemingly turning a corner with the successful growth of its subsidiary companies, such as Uber Eats and Uber Freight.
Uber recently reported its first quarter of positive cash flow of $382 million, a significant milestone for the company. This, along with other cost-saving initiatives, has helped Uber to reduce its cash burn and become profitable. but is this due to the economy recovering from the global pandemic? Or is there an intrinsic reason to be optimistic about the future of Uber as an investment?
Looking in the Crystal Ball
Let’s examine why Uber may be a top stock to buy before the next bull run arrives.
1. The growth of Uber Freight
Uber has proven to be more than a one-trick pony through the success of Uber Eats and now the rapid growth of their next venture, Uber Freight. Uber freight is the company’s answer to the growing need for efficient, cost-effective transportation services.
Uber Freight is one of the fastest-growing sectors within the company, with an astounding 336% growth in the third quarter of 2022 alone. In 2021, Uber Freight acquired Transplace, a freight logistics company, for $2.25 billion to further solidify its position as the leader in on-demand transportation services.
While the Freight sector used to bring in minuscule amounts of revenue compared to the ride-sharing business, the company generated over $1 billion in the third quarter alone. Uber claims that that freight platform now has more than 200,000 users and is present in more than 50 countries and territories. It manages over $17 billion and is now one of the largest freight logistics companies in the world.
2. The Resurgence of Ride Share Bookings
The second reason for optimism stems from the company’s foundational business, the ride-sharing sector. While the pandemic resulted in a significant ride decline due to travel restrictions and lockdowns, we’re now seeing a steady resurgence in bookings as people start traveling again.
The third quarter reports show a booking rate increase of 45%, which is a notable sign that Uber’s core business is recovering. This, in turn, should help the company to sustain growth for the foreseeable future.
3. Uber Reaches Record Highs in 2022
While the share price has decreased nearly 38% in 2022, the company’s core business is showing no signs of slowing down.
Uber Technologies revealed a record high of 124 million customers between all its platforms, a 14% increase from the prior year.
Knowing that Uber Technologies is continuing to grow while the price of the stock is decreasing offers investors some consolation and indeed confidence that the share price has a good chance of recovering when the market does turn bullish.
Is Uber a Good Buy for 2023?
While Uber has had a challenging time securing profitability, there is reason to believe in the company’s long-term success. From the growth of its subsidiary companies, the resurgence of ride-sharing bookings, and its record highs in 2022, there are all indications that Uber is setting itself up for a strong bull run when we see the markets turn around.
Another favorable tailwind to support the bull thesis: intrinsic value sits almost 20% higher than where the current share price sits. We calculated fair value of $31.02 per share based on a discounted cash flow forecast analysis.