Uber: Commercialized autonomous driving shows significant potential

I keep seeing Uber Technologies (NYSE: UBER) stock as a compelling buying opportunity as the company is poised to execute on a robust growth trajectory and strategic positioning in both the ride-hailing and food delivery markets. In mine In our view, the company’s proven ability to drive revenue growth, improve profitability and expand into new verticals is commendable. Additionally, Uber’s self-driving commercialization strategy shows significant potential for long-term value creation—with recent announcements highlighting partnerships with Cruise and Waymo. Following Uber’s Q2 results, I update my earnings outlook for the company through 2026 and now calculate an implied fair share price for Uber of $79.

To give some perspective on the stock price momentum, Uber stock has underperformed the broader market this year. While Uber shares rose about 10%, the S&P 500 climbed about 17%.

Strong financial performance and profitability trends

Uber had a strong performance in its most recent quarter, delivering both solid revenue growth and a strong improvement in profitability. In the period from April to the end of June, Uber reported total revenue of $10.7 billion, reflecting year-over-year growth of 15 percent. In particular, growth was driven primarily by strong performances in its mobility and delivery segments, which together accounted for approximately 88% of total revenue:

• Mobility segment: Revenue from Uber’s mobility segment grew 25% year over year to $6.1 billion. This growth was largely driven by a recovery in travel volume, particularly in major cities, and an increase in active drivers. The company saw an increase in demand for premium ride options such as Uber Black and Uber Comfort, which helped boost overall revenue.
• Delivery: Uber’s delivery segment, which includes Uber Eats, reported $3.3 billion in revenue, up 8 percent from last year. Growth in this segment was supported by the expansion of its grocery delivery and convenience store services and continued strength in food delivery despite increasing competition.
• Cargo segment: The freight segment reported revenues of $1.27 billion, flat for the year. Slower growth compared to other segments was attributed to macroeconomic challenges impacting global supply chains.

Moving on to profitability, Uber reported EBITDA of $1.6 billion, which is a 71% year-over-year increase. Notably, the June quarter marks the fifth consecutive quarter of positive Adjusted EBITDA, which is a testament to management’s continued focus on cost management and operational efficiency. Moreover, the increase in profitability was also achieved through operational leverage and focus on high-margin services such as Uber Black and premium delivery options. Meanwhile, the company continues to reduce its reliance on promotions and incentives, leading to healthier margins. Net income was $796 million, more than double the net income reported for the same period a year earlier.

For the third quarter, Uber’s management guided for gross bookings in the range of $40.25 billion to $41.75 billion, reflecting an increase of 18% to 23% from last year on a constant currency basis. Additionally, the company expects adjusted EBITDA to be between $1.58 billion and $1.68 billion, representing year-over-year growth of 45% to 54%.

Excitement around Uber’s self-driving potential

I’m excited about Uber’s potential in the self-driving revolution. In my opinion, there are several reasons for this: first, the company’s global platform and vast driving data improve autonomous algorithms for safer navigation. Second, Uber’s expertise in managing large fleets should be directly transferable to operating AV fleets efficiently and profitably. Third, strategic partnerships like the one with Aurora Innovation allow Uber to access cutting-edge AV technology without incurring the full costs of research and development. Fourth, active regulatory engagement equips Uber to effectively navigate legal challenges. And finally, Uber’s user base is ripe for innovative transportation solutions, likely making it easier to adopt AV services. At the same time, Uber’s large-scale demand aggregation makes it an attractive partner for AV companies looking to scale operations and improve asset utilization. Indeed, the company is currently in discussions with global AV players to expand its presence in this emerging sector.

As a key win related to this, I point out that Uber has announced a multi-year strategic partnership with Cruise, General Motors’ (GM) autonomous vehicle company, to provide AV ride services through the Uber app. On September 13, Uber management also announced that the company will become the exclusive provider of driverless rides using Waymo vehicles in Austin and Atlanta, strengthening its position in the autonomous vehicle market. Starting early next year, Uber will manage and dispatch a fleet of Waymo electric cars, handling tasks such as cleaning and repairing the vehicles, while Waymo will oversee testing, operation and support for the vehicles. Overall, I expect Uber partnerships to increase the variety and availability of ride options for Uber users, which could increase demand, bookings and revenue. The partnership aligns with Uber’s strategy to leverage its position as the largest aggregator of ride-sharing requests to attract AV companies looking to expand their businesses and increase asset utilization.

Attractive valuation

Uber’s valuation is compelling, especially in light of its strong growth potential and profitability.

Following Uber’s Q2 2024 earnings report and management’s confidence that profitability will expand further, I am revising my earnings outlook for the company through 2026. I now project EPS to be around $1.1 in 2024, 2.3 USD in 2025 and USD 3.9 in 2026. Over time, I anchor my cost of equity assumption for Uber at around 9.5% and apply a conservative post-2026 terminal growth rate of 3.5%, which is only a slight premium to the estimated increase in nominal GDP. Based on these estimates, I calculate an implied fair share price for Uber at $79.2.

For context, in the chart below, the “Speculation” value represents the difference from the implied fair value. A positive value indicates a premium, implying that the market has more upside potential than my estimates suggest.

Below, a sensitivity table to test different assumptions about the cost of equity (rows) and terminal growth (columns).

Investor Takeaway

I maintain a ‘Buy’ rating on Uber as I highlight the company’s strong growth trajectory and strategic positioning in both the ride-sharing and food delivery sectors. Additionally, I highlight the company’s ability to drive revenue growth and increase profitability, while Uber’s self-driving commercialization strategy shows significant potential for long-term value creation (recent announcements include partnerships with Cruise and Waymo). Following the company’s Q2 results, I’ve updated my earnings forecast for Uber through 2026, resulting in a revised fair value estimate of $79 per share.