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Uber Has Not Impressed Investors This Year, But Is Ready for Growth
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Uber Has Not Impressed Investors This Year, But Is Ready for Growth

Story Highlights

Ride-sharing pioneer Uber has many strengths and opportunities that should not be ignored by investors and that outweigh the weaknesses and threats to its business.

Uber Technologies (UBER) is a pioneer in ride-sharing and food-delivery services. Its name is synonymous with the concept of ride-sharing, just like Google (GOOGL) is synonymous with searching for something online. Uber is a strong brand but has not impressed investors in 2024, going by the 17% year-to-date gain. In this article, I will show how Uber’s strengths and opportunities outweigh the weaknesses and threats to its business and why it’s a good stock for growth investors.

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Before we dive into the SWOT analysis for UBER stock, it’s important to understand the several moving parts of this business. Uber has apps through which people can request a cab or order food, and businesses can manage their supply chains and logistics. It also has an advertising business that helps a company to promote its apps’ products.

Although I am bullish on UBER stock and believe it has several strengths and opportunities that investors should not ignore, I’m putting a tiny asterisk, which I will explain in the following piece.

Uber’s Strengths Plus Opportunities

The most important strength for any business is a strong brand, and Uber’s strong brand is central to my bullish thesis for the stock. Uber operates in over 70 countries globally and competes with several services in different regions; however, none of them are close to the $ 152 billion giant. The ride-sharing market is highly competitive, and I think Uber has a clever way of “picking its battles.” For example, the company’s exit from Southeast Asia in 2018 was a strategic move to maximize profits, not a mistake.

In addition to a strong brand, Uber’s asset-light business model is an underrated strength, in my view. The company operates a platform and makes money from every transaction on the platform. Uber was burning cash back in the day and recently became profitable in 2023. In FQ3 2024, the company reported an EPS of $1.20 on revenue of $11.2 billion, which grew 20% yearly. Hence, I see Uber continuing its profitability streak, especially as it capitalizes on the new opportunities that lie ahead.

One of Uber’s most interesting opportunities is electric vehicles (EVs) and autonomous vehicles (AVs), which can potentially bring down its operating costs and enhance profitability. Right now, Uber pays its drivers a huge chunk of the trip. When you remove the human driver element from the equation, Uber can keep the entire fare for itself.

Another lucrative opportunity for Uber is its expansion into under-penetrated markets. Uber is currently a prominent brand in North America and Europe. However, its total addressable market (TAM) in Latin America and APAC should not be discounted.

Uber’s Weaknesses Plus Threats

The fundamental weakness that Uber can overcome now with AVs is its reliance on independent contractors. Uber does not employ drivers on its platform, which has been a significant aspect of the legal troubles the company has faced recently. These legal troubles were the major reason for its unprofitability in the past few years after its IPO in 2019. However, with autonomous vehicles now, Uber can reduce its reliance on drivers who might ask for higher take-home payments or other benefits.

Another weakness for Uber is the relatively low cost for consumers of switching to a competitor service like Lyft (LYFT). Uber’s industry is extremely competitive, and the business model is easy to replicate—all you need is an app. This easy model can pressure overall industry margins as different players compete to offer the best value to drivers and consumers.

However, Uber has addressed this weakness by setting up diverse revenue streams like its advertising and freight business. In FQ3 2024, the ad business grew 80% year-over-year, contributing to overall sales growth. I believe Uber can improve its margins as it scales the ad business and partners with more businesses. Ultimately, the complete utilization of Uber’s platform can help it expand its margins in the long term. Its operating margins have improved to 6.39% over the trailing 12-month period.

As mentioned above, autonomous vehicles are an opportunity for Uber. However, they could also pose a threat. When Tesla (TSLA) launched its Cybercab, there were concerns about it stealing Uber’s business. That most likely will not happen because Uber’s management is executing well on the AV front. The company currently has 14 AV partners, including Alphabet’s Waymo. I believe AVs aren’t a threat to Uber but rather an interesting opportunity. The company has a winning platform that can grow further as it offers both types of services at different price points. It does not have to stick to one.

Is UBER Stock a Bargain?

This is where I put the asterisk on UBER stock. I believe Uber is not offering investors a bargain right now as it trades at 30.5 times its 2025 EPS estimate of $2.36. The company is growing sales at 20%, and while that isn’t bad, I believe the profits accompanying this rich multiple are missing. Uber’s profitability turnaround is still in its early innings, and the stock could have more near-term downsides from here. Therefore, despite the bullish sentiment, I would suggest waiting for the market to correct the multiple on UBER stock before allocating capital.

Analysts’ Opinion on UBER Stock

On the Street, UBER stock sports a consensus Strong Buy rating based on 32 Buy and 2 Hold recommendations. The average price target of $91.86 represents an upside of about 27.51% from current levels.

See more UBER analyst ratings

The Bottom Line

Uber’s pioneer status in the ride-sharing and food delivery market gives it an early-mover advantage over competitors. The company’s smart capital allocation strategy of exiting unprofitable markets and an asset-light model can help it improve margins in the long term. While the ride-sharing market has relatively low barriers to entry, Uber’s strategic moves of diversifying its revenue streams through advertising and freight should help the platform grow. Moreover, AVs aren’t a threat to the business, but rather an opportunity for it to lower its costs and, as a result, boost profits. Therefore, I’m taking a bullish stance on UBER stock.

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