Uber Stock: Rideshare Moat Remains Unchallenged, Robotaxi Poses Risks Ahead (NYSE:UBER)

UBER’s investment thesis remains promising – albeit with inherent upside risks

We previously covered Uber Technologies, Inc. (NYSE:UBER) in June 2024, discussing why we reiterated our Buy rating on the FQ1’24 mixed earnings call due to improved margin of safety and its undisputed moat in the travel share market.

Even so, with Tesla’s ( TSLA ) Robo-Taxi event coming up on October 10, 2024, we may also see moderate volatility in UBER’s stock prices, as it remains to be seen if their existing partnership could be deepened.

UBER Share Price YTD

Since then, UBER has had a tumultuous stock performance as TSLA opted to move forward with “a proprietary ride-hailing app powered by a fleet of both purpose-built robotaxies and driverless consumer cars human”.

With this strategy it naturally triggers intense competition for UBER, we can understand why market sentiment around its outlook has been mixed, as seen in the recent decline since August 2024.

Even so, these developments were also nicely balanced by UBER’s growing partnership with ten “autonomous vehicle manufacturers amid increased technology adoption,” including Waymo under Alphabet ( GOOG ) and Cruise under General Motors ( GM ) – allowing the former to remain. somewhat competitive in the increasingly crowded robotaxi market going forward.

These developments have played out as discussed in our previous article, UBER is likely to experience more volatility until clearer in TSLA’s upcoming October 2024 event.

On the other hand, we remain optimistic about UBER’s long-term prospects, as seen in management’s highly strategic investment in Wayve, a company specializing in embedded AI for autonomous driving.

They expect to accelerate the adoption of Level 2+ advanced driver assistance and Level 3 self-driving capabilities in global OEMs, while developing “globally scalable Level 4 autonomous vehicles for future deployment on Uber.”

These developments show that UBER is aiming to become a powerhouse in both the conventional transport market and the robotaxi market, the latter naturally being a new growth opportunity that builds on its global consumer database .

This also builds on its existing offerings, which have proven to be very attractive – based on the ability to attract new users while increasingly monetizing existing users, as seen in the growth monthly active platform customers (MACP) of 156 million (+7 million tm/tm/ +19M YoY) and monthly trips on MAPC at 5.9 (+1.7% QoT/ +5.3% YoY).

These have already contributed to the double FQ2’24 earnings call and promising guidance for FQ3’24, implying UBER’s ability to operate at scale while expanding its profit margins despite potential headwinds from driver pay increases with shared transportation as discussed in our document. the previous article.

In any case, the carrier has already aggressively grown the number of drivers and couriers to 7.4 million (+4.2% ToQ/ +13.8% from FQ3’23 levels), allowing the platform to lower prices for users while naturally feeding the Demand Flywheel as the company expands its share of spirit.

Finally, readers should not forget UBER’s biggest growth area, advertising, which has already reached “over $1 billion based on run rate” (+11.1% ToQ/ +100% vs. FQ4’22 levels) – comprising around 2.3% of its FQ2’24 revenues.

While management has yet to break down the segment’s bottom line, readers should note that advertising is typically a high-margin business.

This explains why the ride-hailing company has been looking to grow its list of sponsors on the food side while “actively launching into markets outside the US, expanding into what Khosrowshahi (UBER CEO) believes an extremely profitable business”.

Advance consensus estimates

Perhaps this is why the consensus is keeping forward estimates relatively promising, and UBER is expected to generate robust top/bottom-line growth at a CAGR of +15.7%/+31% through FY2026.

This compares to initial estimates of +16.1%/ +19.2%, while based on topline growth at a CAGR of +27% between FY2018 and FY2023, respectively.

UBER Ratings

As a result, we believe UBER is not expensive at non-GAAP FWD P/E valuations of 31.78x, compared to the sector median of 19.28x.

This is due to the extremely cheap non-GAAP PEG ratio of 0.66x compared to the sector median of 1.76x and LYFT at 0.76x, GRAB currently still unprofitable.

This is significantly helped by UBER’s robust free cash flow generation at $4.75 billion over LTM (+172.9% sequentially) and lower net debt on the balance sheet at -$3.17 billion (-14.3% ToT/ -14.3 YoY), as management also aims to “use most of its incremental capital for buybacks with the aim of reducing the company’s share base going forward”.

So UBER stock is a buysell or keep?

UBER 5Y share price

For now, the bulls have come to UBER’s defense during the deep pullback since August 2024, with the stock retesting its intermediate resistance levels of $72.

Based on FQ2’24 annualized EPS of $1.88 (+251.6% ToQ/ +161.1% YoY) and non-GAAP FWD P/E valuations of 31.78x, it looks like the stock is trading at a notable +21.4% premium to our estimated fair value of $59.70.

Despite this, based on reduced consensus estimates for FY2026 adjusted EPS of $4.29 to $4.09 (likely attributable to uncertain robotaxi development) and the same P/E valuations, we believe excellent upside potential of +79 remains .2% to our updated long. -term price target $129.90.

Given the still attractive risk/reward ratio, we reiterate our Buy rating on UBER stock here.

Risk warning

For now, it goes without saying that UBER stock’s performance is likely to remain mixed until TSLA’s robotaxi ambitions prove to be a minimal threat.

Otherwise, we may see equity valuations and consensus forward estimates of the former continue to moderate as the market becomes even more pessimistic about its ability to sustain the high growth trend.

While UBER let it be known that it is “in late-stage discussions with additional global AV players to join our platform and will have more announcements in the coming weeks and months,” readers may indeed want to temper their short-term expectations.

This is because TSLA has sold more than 4.97 million EVs globally to date, while delivering an annualized total of 1.77 million vehicles through the last quarter (+14.7% ToQ/ -4.7% YoY) – implying its ability to rapidly expand its robotaxi dreams. regulatory approval.

This is also why we urge investors to observe the movement of UBER’s share price for a little longer before adding a moderate pullback, preferably to the established support level of $62 for an improved margin of safety.

Patience may indeed be more prudent as it remains to be seen whether stocks are able to sustain the upward momentum from the last level.