Ridesharing giant Uber Technologies (NYSE:UBER) has gained an impressive 88.3% YTD, outperforming the S&P 500’s (SPX) gain of 14%. Thanks to its ability to diversify its business beyond ridesharing to delivery and freight, it’s now profitable. Uber is showing strength across all its business operations, giving investors hope that its growth story is still alive. Furthermore, Wall Street believes the company is capable of tackling any hurdles that come along while keeping its growth strong. Hence, I am bullish on Uber, too.
The Green Flags for Uber
Uber struggled during the global pandemic when the world came to a halt. But once the pandemic-related concerns waned, the company quickly turned a corner.
What’s impressive about Uber is that it didn’t confine itself to just ride-hailing services. Over the past few years, it has diversified its services with Uber Eats, a food delivery service, and Uber Freight, a freight transport platform. According to Precedence Research, the global food delivery market is expected to grow to $517.4 billion by 2032, registering a compound annual growth rate of 10.5% from 2023 to 2032. Uber could capitalize on this massive opportunity.
Notably, Uber’s revenue has grown from $10.4 billion in 2018 to $32 billion in 2022 ($35 billion in the trailing 12 months). In its latest quarter, total revenue increased by 14.3% year-over-year to $9.2 billion, with a 22% jump in total trips to $2.3 billion. Plus, Uber’s gross bookings grew by 16% year-over-year to $33.6 billion. Around 47% of Uber’s total revenue came from its Delivery and Freight businesses.
What’s more, the company even reported a profit in its second quarter. The company’s growth drove its net earnings to $0.18 per share in Q2 compared to a loss of $1.33 per share in the prior-year quarter.
Free cash flow of $1.1 billion in the quarter jumped an impressive 198% from the year-ago quarter. The company also ended Q2 with cash, cash equivalents, and short-term investments of $5.5 billion, further showing its financial strength.
With an optimistic outlook for the third quarter, Uber expects gross bookings in the range of $34 billion to $35 billion, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in the $975 million to $1.02 billion range.
On October 27, TD Cowen analyst John Blackledge reiterated the stock’s Buy rating, forecasting a strong third quarter. He predicts that Uber’s gross bookings could be in the higher range of its guidance, with EBITDA at around $1.03 billion, higher than the company’s forecast. The analyst has a price target of $65 on UBER, implying 35% upside from current levels.
More Room to Run
Uber has now expanded its global reach into 10,500 cities in 70 countries, making its mark. It also offers subscription membership services to end-users through Uber One, now available in 15 countries.
Furthermore, Uber’s foray into autonomous vehicles should pique the interest of long-term investors. It demonstrates the firm’s dedication to technological advancement. Although Uber faces stiff competition in this space from EV giant Tesla (NASDAQ:TSLA), I believe the company is capable of guarding itself.
For instance, Uber announced a collaboration with Alphabet-owned (NASDAQ:GOOGL) Waymo that will provide Uber with its self-driving vehicles for rides and food delivery. More doors may open for Uber in the near future if the company keeps collaborating with other companies.
That said, Uber’s journey hasn’t been without hurdles. The company has faced many regulatory challenges and legal disputes over the past few years. Recently, along with ridesharing company Lyft (NASDAQ:LYFT), Uber settled a long-running wage theft investigation by jointly agreeing to pay a total of $328 million to drivers affected by the companies’ alleged practices. In New York State, the companies were charged with illegally denying driver’s wages and failing to provide required paid sick leave.
Also, the Attorney General’s office stated that other agreements were made to improve the working conditions of both Uber and Lyft’s drivers. Addressing these issues is critical for the company’s continued growth and credibility.
Looking ahead, analysts are hopeful Uber will report another profitable quarter in Q3 (ended September 30). The company will release its Q3 earnings tomorrow, and analysts forecast earnings per share of $0.07 on $9.5 billion in revenue. Furthermore, analysts anticipate that Uber’s 2023 and 2024 will be profitable years.
Revenue is also expected to grow by 18% to $37.6 billion in 2023, further increasing to $43.9 billion. As a result, the stock trades at 2.6 times forward sales for 2023, which appears to be quite cheap based on its outstanding growth forecasts.
What is Wall Street’s Prediction for Uber Stock?
Overall, Wall Street is highly optimistic about Uber stock. Out of the 16 analysts covering the stock, all of them rate it a Buy, giving it a Strong Buy consensus rating. The average UBER stock price target of $59.20 implies 23% upside potential over the next 12 months.
The Bottom Line on Uber
Despite the ongoing challenges, Uber continues to be a dominant force in the transportation and tech sector. Its ongoing innovation and expansion into new markets point to a bright future. As Uber continues to innovate and diversify its offerings, its potential to boost its revenue will grow. As long as it maintains its revenue growth trajectory, it should be able to sustain its profits while keeping its balance sheet stable.
Despite the recent stock rally, I believe Uber’s success story is just getting started. As a result, I agree with Wall Street’s optimistic outlook on Uber.
