Will Uber shares crash in the next 18 months?

Uber technologies (NYSE:UBER) is among the top global players in the ride-hailing market, providing more than 7.6 billion rides per year to commuters around the world. The company has carved out quite a profitable and profitable niche in its sector, seeing a rise in profitability in recent years as the transportation giant has raised its prices to offer huge returns to investors.

Over the past year, UBER shares are up more than 55% at the time of writing as investors continue to expect earnings growth to lower the company’s multiple. At a valuation of around 80 times trailing earnings, this stock doesn’t come cheap. As a result, there is certainly a mixed outlook on how this stock is expected to perform over time relative to market expectations. On the one hand, bulls expect profitability to continue to rise and this stock to see fundamentals-driven growth. On the other hand, bears may look at this valuation and suggest that pricing power may be limited due to weakening consumer and competition in this space.

We will have to see which group is right, but my view is that Uber will not collapse in the next 18 months, and there are a number of reasons for this. Let’s take a more optimistic angle on why Uber could be poised to see continued upside in the near term.

Strong finances

A couple is looking at books and discussing finances

Uber reported strong results in Q2 2024, bringing in $40 billion in gross bookings (up 19% year-over-year). Travel rose 21% to $2.8 billion and sales rose 16% to $10.7 billion, beating estimates. While freight revenue remained flat, the mobility and delivery segments grew significantly. In addition, Uber’s monthly active users reached 156 million, boosting ad sales by $1 billion.

With $6.3 billion in cash, $1 billion in net income and $1.7 billion in free cash flow, Uber is well-positioned for growth and investment in technologies like self-driving and AI, and has expanded its grocery delivery business through a new partnership with Instacart. .

Wall Street forecasts Uber’s adjusted earnings will rise from $0.81 per share in 2023 to $2.22 per share by 2025. The stock is valued at 32.7 times forward earnings, meaning it’s much cheaper over the long term , but still not cheap in general. That said, among the 41 analysts covering Uber, 35 rate the stock a “strong buy,” three “moderate buy,” and three “hold,” giving it an average rating of “strong buy.” The average 12-month price target for Uber is $85.97, about 20% above the current price.

Partnership with Cruise

Image of a General Motors office building

On August 22, General Motors (NYSE:GM) autonomous vehicle company Cruise and Uber announced a multi-year partnership starting next year. This partnership will let Uber riders choose Cruise’s driverless cars for their rides. Uber has already started offering driverless rides in Phoenix through a partnership with Waymo, which operates a fleet of about 700 self-driving vehicles. Cruise CEO Marc Whitten expressed his enthusiasm for the collaboration, highlighting its potential to improve urban mobility and safety through autonomous driving.

Uber CEO Dara Khosrowshahi emphasized that Uber is crucial in integrating self-driving technology globally. He hinted at new partnerships in autonomous vehicles (AVs) and emphasized Uber’s role in driving demand without AV companies having to invest heavily in customer acquisition. Khosrowshahi too expressed doubts about Tesla’s plan to rent cars for taxi services, questioning whether Tesla owners would want foreigners to use their vehicles and noting the potential challenges in managing supply and demand.

Increased focus on autonomous driving

A person reading a book in an autonomous vehicle with the words “self-driving” on the windshield

Uber has collaborated with 10 companies on the development of autonomous vehicles, seeing a six-fold increase in autonomous travel in Q2. Waymo offers self-driving rides and food delivery through the Uber app in Phoenix. Aurora, which acquired Uber’s self-driving vehicle project in 2020, has expanded its partnership with Uber. And most notably, Uber owns a $900 million stake in Aurora, intending to use its self-driving trucks for Uber Freight’s commercial hauls.

In July, Uber also announced a multi-year deal with China’s BYD 100,000 BYD electric vehicles to its network and explore future collaborations with autonomous vehicles. While Uber is the leader in autonomous vehicle platforms among ride-hailing rivals, there is competition in this space. Companies like Tesla, which are developing advanced self-driving software, could one day set up their own transportation networks. For now, these risks appear to be more speculative, given the facts Uber’s vast customer base, which for now provides a significant inroad into the self-driving transportation market.

Uber still looks like a buy here

A growing pile of coins growing from left to right with an arrow pointing up

It trades at a price-to-sales ratio of 3.8 timesUber would need to reach $200 billion in annual revenue by 2034 to justify a fivefold increase in value. This calls for annual revenue growth of 17.5%, compared to its past growth of 29.4% from 2017-2023 and a forecast of 24.6% for 2024. I think such growth is certainly possible, especially when considering the potential impact of self-driving technology on the company’s future profitability and efficiency metrics.

Self-driving vehicles could revolutionize Uber’s economy by eliminating $67.7 billion in annual expenses for human drivers. While some costs will be passed on to autonomous vehicle owners, significant savings are expected due to their low operating costs. Uber could invest in its own fleet of self-driving cars for major cities, earning full revenue, which would be a major breakthrough.

We’ll have to see what happens, but in my view, UBER stock looks more like a tech stock that is likely to make higher highs than lower lows over the next 18 months.

The post Will Uber Shares Crash in the Next 18 Months? appeared first on 24/7 Wall St..