Uber: An Early Christmas Gift From Mr. Market
Industry leader at a substantial discount
Introduction
Amid fears of potential disintermediation by autonomous vehicles [robotaxis], Uber Technologies, Inc. (UBER) stock has tumbled by more than 30% off its October 2024 highs in a matter of weeks:
While headlines such as Alphabet's (GOOGL)(GOOG) Waymo skipping Uber in its robotaxi expansion into Miami are thought-provoking and enough to rock the boat for certain groups of investors, Uber's positioning as the "transportation utility app for all", i.e., demand aggregator for everything transport for 160M+ consumers, renders it an unavoidable marketplace platform for autonomous vehicle companies [suppliers].
Yes, Tesla (TSLA) and Alphabet have deep pockets, but building a two-sided robotaxi network from scratch would require spending (burning) tens of billions of dollars and take several years to achieve scalable economics. And with Uber already being a verb at this point, changing customer behavior will be hard - despite the novelty of driverless taxis. Also, Uber is already working with multiple AV suppliers to bring robotaxis onto its platform:
From an economic standpoint, partnering with Uber as an AV supplier makes much more sense than trying to generate demand on a new robotaxi network with limited and expensive AV fleets.
Now, in the past, Uber's leadership team have pitched autonomous vehicles as TAM expanders, and I believe this is the proper thought process as increased supply in the form of robotaxis will likely reduce cost per mile on Uber, which in turn would push penetration rates and gross bookings higher!
The evolution of the autonomous vehicle market will play out over the next decade or two, and as such, discarding Uber based on fear of disintermediation seems premature. As an Uber shareholder, I plan to monitor developments in this space closely; however, as long as Uber's business grows according to plan, I see no reason to panic sell. Instead, the recent leg down in UBER stock has significantly boosted its long-term risk/reward, with TQI's 5-year expected CAGR return for UBER jumping up from ~16.1% to ~25.8%.
Updated Fair Value And Expected Return
Based on forward-looking estimates, Uber remains on track to grow its top line at a healthy double-digit clip over the next five years:
As such, for today's valuation exercise, I am sticking with the growth and margin assumption used in our previous assessment of UBER. That said, I have updated Uber's revenue base to $43.71B (consensus revenue estimate for 2024) and share count to 2.154B. All other assumptions have been held constant and are relatively straightforward; however, if you have any questions, please share them in the comments section below.
According to our valuation model, Uber's fair value is ~$105.5 per share, i.e., it is currently undervalued by ~45%. Furthermore, in light of a sizeable drawdown, UBER's long-term risk/reward has improved considerably. With its 5-year expected CAGR return now sitting at ~25.8% - far higher than our investment hurdle rate of 15% - I now view UBER as a "Strong Buy".
Final Thoughts
In a historically expensive equity market, UBER is one of the few large-cap tech stocks that represents fantastic value right now!
In my previous report on Uber, I shared my detailed bullish investment thesis and concluded the note by writing -
While I would certainly like to buy UBER on a pullback after such an astronomical move-up in its stock, the business is firing on all cylinders while turning into a reliable cash printing machine. Given Uber's rapidly expanding cash flow production and management's adoption of shareholder-friendly capital allocation policies, I think investors have an ample margin of safety with this large-cap tech stock.
Key Takeaway: I rate Uber a "Buy" in the $70s, with a preference for staggered accumulation via a 6-12 month DCA plan.
Now, the pullback in UBER stock has finally arrived. Yes, Uber's optics are poor due to recent robotaxi developments; however, Uber's business is in fine fettle, with robust ongoing growth in sales and profitability:
In Q3 2024, Uber's gross bookings rose 16% y/y to $40.97B, powered by healthy growth in MAPCs [+13% y/y] and MAPC usage frequency [+4% y/y]. Furthermore, Uber's cash conversion continued improving rapidly during Q3, with free cash flow jumping up by +133% y/y to $2.1B.
From a technical standpoint, Uber is sitting right above its 100-week moving average level, which is likely to act as a strong support. Furthermore, we have the 200-week moving average at $47. Given Uber's weekly RSI is close to oversold territory, I view the $47-57 range as a strong buy zone for long-term investors.
Key Takeaway: At $60 per share, Uber is an incredible proposition for long-term investors. Hence, I rate it a "Strong Buy" right now.
Thank you for reading, and happy investing! Please share any questions, thoughts, and/or concerns in the comments section below or DM me.