Uber: Tons Of Room To Run

seekingalpha01-13

Uber's platform remains sticky, and the company has managed to continually grow its user base, leading to a solid top-line growth trajectory.Despite the recent rally, Uber's stock still has the ...

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If management can successfully continue to grow users, build out the ad platform, and improve net take, then the valuation could  double, resulting in a solid gain over the coming years. Since our articles, Uber is up 50% and 38%, respectively. Today, with another earnings report in the books and a hefty rally under its belt, we thought that it was a good time to re-investigate the stock to see whether or not the company was still compelling, even with a significantly higher nominal price. 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Back in June of 2023, we published for the first time on the company, in an article titled: \"Uber: Revenue Could Double By 2026\". The core thesis of this piece was that Uber's platform appeared sticky, and management seemed to be doing a good job at cross-monetizing it's growing userbase. This dynamic could lead to significant continued top line growth, which, at the time, was not sufficiently priced into the stock. In September, we followed up our first article with a second one, titled: \"Uber: $150 Per Share Is Not Unreasonable\". The core question we were looking to answer here was \"What could this company be worth, in a bullish scenario?\" Our answer was (and remains) around $150 per share. If management can successfully continue to grow users, build out the ad platform, and improve net take, then the valuation could (reasonably) double, resulting in a solid gain over the coming years. Since our articles, Uber is up 50% and 38%, respectively. Today, with another earnings report in the books and a hefty rally under its belt, we thought that it was a good time to re-investigate the stock to see whether or not the company was still compelling, even with a significantly higher nominal price. Sound good? Let's begin. Financial Results As always, we'll begin with the financial results. In November of 2023, Uber released their Q3 results. To some, it appeared to be a miss, with EPS and top line numbers alike coming in below expectations: Seeking Alpha However, if you've been following along with our former analysis, then you know that the key metric to track for Uber right now is MAPC, or Monthly Active Platform Customers. Given that Uber's revenue is basically equal to (average customer monetization) * (number of customers) at the moment, then it's clear that this is one of the two key drivers when looking out towards Uber's revenue trajectory. We are happy to report that the company remains ahead of expectations, with, presently, 142 million users on the platform: PropNotes This remains ahead of our Q3 *optimistic* projection of 140 million, and it also lowers the hurdle for getting to 145 million users by the end of FY 2023. As revenue was up only slightly, this does mean that quarterly RPU did come down somewhat, towards $65.5, which represents a slight drop. We'll hold off on judging this result too harshly, as fluctuations can happen on a quarter to quarter basis. That said, on the flip side of the coin, there's plenty of other positive news. First off, income trends are also in the right direction. Operating income reached a new high at $394 million in Q3, which continues to cement the idea in our minds that Uber's permanent profitability inflection was somewhere in the middle of 2023's calendar year: Seeking Alpha Obviously, we'd still like to see a positive FY operating income soon (hopefully '23!) to follow along with the FCF trends, but it's possible that the company might not get there so soon. In other news, trips growth has grown faster than MAPCs YoY, which also buttresses our stickiness thesis: Uber As customers become Uber customers, they can't help but use the product more and more over time - something we've argued before:  Uber's delivery offerings have become as robust as its mobility ones, which has meant that consumers who already have the app can begin doing more and more with the platform. Over time, pulling up Uber for food or transportation of any kind becomes a sticky, convenient habit for consumers, one not easily let go. As a result, Uber is now in a great position. It's no longer a ridesharing app; it's the ultimate in convenience with a large (and growing) customer base who are accustomed to spending on a regular basis.  In addition to the metrics, the product teams are still shipping, which should continue to find its way into the top line: Uber Overall, MAPC's continue to grow, user retention & growth remains strong, and profits are continuing to be generated on a consistent basis for the first time. Not a bad quarter! Momentum & Valuation Here's where it begins to get interesting. Since October 26th, Uber's stock has gone on an epic run, up more than 53% in just 51 trading days: TradingView Traveling from $40 per share to more than $62 as of writing, this run up has been uncharacteristic for an otherwise lethargic looking stock. As a result, many have come out and argued that it's a great time to sell: Seeking Alpha However, in our view, this is a classic case of anchor bias. Because the stock has been trading in the doldrums between $20 and $40 per share for such a long time, a run up above those levels appears to be a good chance to cash out. However, zoom out and something interesting happens; it appears that UBER is about to have the mother of all breakouts: TradingView With previous all-time highs at $64.05, a breakout above that level would be highly technically encouraging. Plus, what if investors are anchored to a lower-than-deserved multiple for UBER? As we've laid out many times, $150 per share is not unreasonable, assuming the company's current growth rate, in both financial results and diluted share count: PropNotes The company's top line multiple is still under 4x, which is low for a platform tech company, and sustained OI profitability has recently been reached, as outlined: TradingView Taken together, there's a lot of potential for shares to enjoy a higher-for-longer multiple that isn't anchored to the post-covid rebuilding era that the company has successfully emerged from. It's true that shares are overbought, and in the short term, that's an issue. RSI, MDD, and linear regression indicators are all showing an overbought condition here in the stock: TradingView However, following a pullback, a break of highs could signal a new paradigm for the stock in where investors assign a higher multiple to Uber's robust business model. We think there's significant room in the valuation, as well as on a technical basis, to sustain continued momentum to the upside. From a peer perspective, there aren't a lot of good comparisons, outside of a few much smaller competitors, like Lyft (LYFT), Grab (GRAB), and DiDi (OTCPK:DIDIY). On those metrics, Uber appears to be in the middle of the range, valuation wise, which is somewhat surprising given its massive market share advantage: Seeking Alpha Zooming out, this also supports the idea that Uber has some room to grow into a more premium valuation, especially given its positive net income and solid market position. Risks For our money, it appears that there is still a ton of upside in the stock, despite many calling for sales as a result of the short-term rally. However, there are risks. The key risk here is that Uber remains incapable of increasing RPU over time. They've shown no issues in growing users as a result of ~4B in ad spend annually, along with strong referral / network effect user acquisition dynamics. However, one of the keys to the long thesis here is that Uber will find a way to improve revenue per user into the mid 80's over the interim. Whether that's through an increase in ads, higher vig on ride and delivery bookings, or continued cross-selling margin opportunities, it doesn't matter. If the company can't make it happen, then a higher multiple isn't deserved. This could crater the stock over a few quarters if and when this becomes apparent to investors. There are a number of other risks present right now in Uber, but most are secondary in nature - to us, this appears to be a growth / valuation balancing act that management needs to satisfy. If they can, which we believe is probable, then the rewards justify the risk set. Summary While some have been calling for a ring-the-register approach to Uber lately as a result of the strong run up in shares, we think there's still a lot of upside room for investors, especially above the key $64.05 level. Given that our long-term price target sits closer to $150, we think buying any pullbacks before new highs, or new highs (should they present), represents a solid entry point in a name that continues to grow users, platform utility, and overall profitability. All in all, we still rate Uber a \"Strong Buy\".  Cheers!","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2403733685"}