Why Bill Ackman Just Bet $2 Billion on Uber

In February, Pershing Square manager Bill Ackman revealed that his fund had deployed around $2 billion worth of its capital early in the year to buy a little over 30 million shares of Uber (NYSE:UBER).

Sometimes referred to as a new Warren Buffett for his value-driven investment strategies that in many ways mirror the Oracle of Omaha’s, Ackman’s investment moves are worth watching and studying.

Let’s take a look at why Bill Ackman bought Uber stock and whether the company could still be a good investment today.

Back in February, billionaire investor Bill Ackman made a bold move: his firm, Pershing Square, poured roughly $2 billion into Uber (NYSE: UBER), scooping up more than 30 million shares of the ride-hailing giant.

For those who follow Ackman closely and many do, considering he’s often called a modern-day Warren Buffett this wasn’t just another trade. It was a calculated, long-term bet on a company he believes is significantly undervalued.

Let’s unpack why Ackman bought Uber, what he sees that others might be missing, and whether Uber could still be a smart play for investors today.

Key Points

• Ackman saw Uber as undervalued, with $6.9B in 2024 free cash flow and high returns on capital (ROIC: 38.9%, ROE: 63.2%).
• Uber controls 76% of U.S. rideshare, and CEO Dara Khosrowshahi has led a successful turnaround to profitability.
• Pershing’s stake in Hertz could set up a strategic partnership. With a ~20% upside, Uber remains a long-term play.

Ackman’s Own Statements About Uber

One of the biggest reasons Bill Ackman decided to start acquiring a large chunk of Uber was its favorable valuation. As he said when he revealed Pershing Square’s position in the company, Uber appears to trade at a large discount to its intrinsic value.

As a value investor, the perceived mismatch between Uber’s value and its share price appears to have been a primary driving factor in Ackman’s decision to buy.

This undervaluation is an extremely interesting aspect of Uber at the moment. Unlike many fast-growing tech companies, Uber trades at a relatively modest P/E of 16.2. In large part, this is due to a selloff that began last year when Tesla unveiled its Cybercab and announced plans to start its own autonomous taxi service.

While these fears have faded alongside Tesla’s own fortunes since then, Uber has still lagged over the last year. On a trailing 12-month basis, shares of UBER are only up a little more than 4 percent.

Also among Ackman’s stated reasons for buying Uber was the success of its management team. While discussing Uber, he publicly praised CEO Dara Khosrowshahi for his performance and success in driving the company’s growth. As an investor with an activist background, management tends to be an extremely high priority for Ackman.

How Uber Lines Up Against Ackman’s Other Investment Criteria

Although favorable valuation and excellent management were directly stated by Ackman as reasons for buying Uber, the company also lines up well with the other criteria he’s known to use when evaluating a business.

First and foremost is Uber’s market dominance, which Ackman prioritizes when adding companies to the Pershing Square portfolio. Uber’s market share among US rideshare services is about 76 percent, and only Lyft currently acts as a meaningful competitor.

This dominant market share makes Uber quite difficult for another competitor to disrupt. The nature of the ridesharing market is also such that there are very large barriers to entry for any new companies, another characteristic that Ackman tends to look for.

For a new ridesharing company to emerge, it would have to build out a driver network, popularize its own app and expand within a market that is effectively controlled by Uber and Lyft. While not impossible, the time and capital it would take to pull off such a feat would be extremely large obstacles to any new potential competitor hoping to dethrone Uber.

Ackman also prioritizes businesses with simple, predictable models that generate free cash flow on a consistent basis with minimal exposure to external risks. Once again, Uber fits this vision of a high-quality business quite well. For many consumers, Uber’s ridesharing and food delivery businesses are built-in parts of everyday life.

As such, its business will likely remain predictable even in the event of economic downturns or other macroeconomic risks. As for the free cash flow the business produces, it’s both significant and also growing at a rapid rate. In 2024, for instance, Uber’s FCF was $6.90 billion, an increase of over 105% compared to the previous year.

A final point about Uber that may have made it attractive is its high return on invested capital. At 38.9%, Uber’s ROIC is impressive by almost any standard. This is paired with an even more appealing return on equity of 63.2 percent.

As such, the drop in UBER share prices appears to have given Ackman and the team at Pershing Square the opportunity to buy into a high-return business at a price that the market would rarely assign to a company with such strong performance.

Why Ackman Bought Uber

Bill Ackman’s decision to invest $2 billion in Uber lines up almost perfectly with his own publicly stated investment philosophy.

Uber operates a predictable business that produces a strong positive cash flow, is insulated from both competitive pressures and external risks, offers strong returns on invested capital and is run by a proven management team. By almost every metric Ackman tends to use in analyzing the qualities of a business, Uber stands out as an exceptional company.

All of these factors were already in place at Uber. Ackman himself acknowledged that he has admired the company for years and has even had minor exposure to the stock since its early days through a venture fund investment.

When Uber’s share prices declined last year, however, Ackman got the opportunity to make a sizeable investment in a high-quality business while it was undervalued. Although UBER is still depressed at the moment, it seems quite likely that Ackman’s decision will pay off in the long run for Pershing Square.

A final reason Ackman may have been eyeing Uber is for its potential synergy with another investment he has made recently, namely Hertz (NASDAQ:HTZ). Pershing Square was already investing in Hertz by the end of 2024, but it has since grown its stake in the rental car company to 20%.

Ackman has personally floated the possibility of a partnership between the two companies, something that would likely unlock significant value for both of them. So, while Uber was very likely a great investment on its own merits, it may also have presented an opportunity for Ackman to get back to his activist investing roots by opening up a potential deal with Hertz.

It’s also worth noting that Uber could still be worth a look at the moment. With shares currently trading at about $76, the stock is above what Ackman was paying for it in January.

Over the last three months, though, the shares have only increased by about 8%. As such, there could still be a decent amount of room left for investors to buy at an attractive valuation. The current slate of analyst price forecasts gives UBER an average price target of $88.46, implying an expected gain of almost 20% over the coming 12 months.