Uber (NYSE:UBER) has been on the map for several years. Warren Buffett offered to invest $3 billion in Uber in 2018, but the two companies could not agree. Even though Uber went public in 2019, Uber’s stock price has hardly budged. Many lawsuits were filed against the corporation because of labor concerns, which might lead to large cost increases in the future.
Uber is an innovative corporation because it has created a robotaxis to transport its customers without needing a human driver. This is a game-changer for the company’s development prospects since it will help them avoid costly labor disputes in the future. Yet, concerns such as “who is accountable in the case of a collision?” and “what insurance is required to operate robotaxis?” may arise. Waymo and GM will also be formidable rivals to Uber. The market is sizable and expanding quickly, yet with high potential rewards comes high danger. Uber has seen a meteoric increase in income from its inception despite a stagnant stock price. For this reason, it’s an excellent time to acquire shares at the current price.
Robotaxis to Prevent Labor Problems
A robotaxi is a kind of taxi that is gaining popularity. Robotaxis are driverless taxis that can take passengers where they need to go. Strong market leaders include Waymo from Google (GOOGL) (GOOG) and Apollo from China’s Baidu (BIDU). To create these maps, they use LiDAR sensors installed in their vehicles. Because of this, the software can do the necessary math to point them in the appropriate direction and enable them to take part in traffic. The concept is straightforward: riders may book a robotaxi to pick them up at a certain time through an app. Taxi services may undercut the competition since they don’t have to pay a driver’s salary.
Robotaxis from Uber is equipped with LiDAR technology, exactly like those from Waymo and Apollo. The company is rapidly approaching where it can provide autonomous taxi services. Motional, a Hyundai and Aptiv partnership, is an Uber partner. Under the terms of the 10-year agreement, Uber will integrate Motional’s Ioniq EVs as robotaxis into its platform. After the product has undergone rigorous testing, it will be made available to customers worldwide.
I believe Uber’s investment in robotaxis is wise since it may help the firm avoid labor concerns in the future. There is a lot of debate concerning the legality of drivers working as independent contractors rather than Uber employees. Minimum wage, working hours, and other labor concerns are contentious. As a result, Uber’s expenses may increase by as much as 30 percent. Robotaxis promise to eliminate these problems, which is good news for Uber.
Aurora, a company in which Uber invested heavily in 2020, is now the proud owner of Uber’s complete information on autonomous taxis, acquired via a sale to Uber’s ATG Group. This decreases Uber’s R&D expenditures, allowing the company to earn a profit while still integrating its app and services into robotaxis. The decision made by management is the right one.
Waymo, on the other hand, is significantly further advanced in its development, having racked up over 20 million kilometers of real-world driving before Uber ever started. GM, like Toyota, is on pace to provide robotaxi services. How exactly they will provide this service remains a mystery.
Uber’s TAM May Be Massive
Uber is a market leader in three distinct industries: ride delivery, food delivery, and freight delivery. As a result, the size of their potential market is enormous. In this article, we’ll briefly examine how big of an opportunity Uber really is.
According to Statista, the worldwide ride-hailing and taxi services market will be worth $331 billion in 2023 and grow at a CAGR of 3.5% between 2023 and 2027. Based on projections from Statista, Baidu’s Apollo robot cabs will earn the company the most money in China. Taxi and ridesharing service earnings are very volatile; for instance, they dropped precipitously during the Coronavirus outbreak.
Uber Eats, Uber’s meal delivery service, has a 23% market share in the US and is one of the major food delivery businesses in the country. Sixty-three percent of the market is controlled by DoorDash (DASH). According to Statista, by 2023, the global market for online meal delivery will be worth $0.91T. An annualized growth rate (CAGR) of 12.3% in revenues is projected from 2018 to 2027. In addition to being sizable, this market is expanding at a rapid clip. By 2024, it is anticipated that groceries will have grown by 20.6%.
Uber is considering selling its freight segment to streamline operations and generate funds for share repurchases. According to recent comments from Bank of America, this may serve as a modest boost for the stock price.
Profits Soar in the Fourth Quarter
For the previous four years, revenue at Uber has climbed yearly by 32%. Furthermore, the lack of profitability means the stock is better categorized as growth.
Positive trends continued into the fourth quarter, with gross bookings increasing 19% to $30.7 billion and trips increasing 19% to 2.1 billion (an average of 23 million daily trips). Thanks to a new business model for the UK Mobility business and the purchase of Transplace by Uber Freight, quarterly revenue climbed by a significant 49% (59% at constant currency). Income before interest, taxes, depreciation, and amortization was $665 million, and the adjusted EBITDA margin/gross bookings were 2.2% (compared to 0.3% in Q4 2020). Due to paying off VAT claims with the UK’s HMRC, Uber’s free cash flow became negative. In 2022, free cash flow was $1.1 billion before accounting for these claims. The percentage of sales represented by free cash flow was 3.5%.
If we look at Uber’s financials, we notice that it has $4.3 billion in cash on hand, but $9.3 billion in debt, for a total of $5 billion in net debt. The net debt is sustainable for the foreseeable future, given the free cash flow of $1.1 billion (minus the claim).
Uber projected high growth in gross bookings of 20% to 24% and adjusted EBITDA of $660 million to $700 million for the first quarter of 2023.
Is Uber Worth Investing In?
Uber serves an expanding customer base in a rapidly expanding market, which has led to a rapid expansion of the company’s bottom line. The company’s profit margin may improve, and it could avoid potential labor disputes if it implemented its robotaxi service. So, how much is this stock worth?
I determine the Uber stock’s value using the price-to-sales ratio. The YCharts graph below shows that the current price-to-sales ratio of 2 is at a record low (more than half the 3-year average). This suggests the stock is reasonably valued.
In addition, 16 analysts have projected that EPS will hit $1.48 in 2025, resulting in a PE ratio of 22. Yet a recession may be on the horizon, and predicting the future is still challenging. Twenty-two experts have raised their projections, while twelve have lowered them. It is now a good time to invest in the stock since the price-to-earnings ratio, and price-to-book value ratio are positive.
Uber has made significant innovations, and the company plans to start offering robotaxi services in the near future. There is no need for a cab driver because of this service. However, it still provides taxi rides in urban areas. Uber can avoid possible labor difficulties while saving money on gas with its robotaxi service. Uber serves a huge and expanding sector of the economy. Fourth-quarter profits for Uber were solid, thanks to a 19% spike in gross bookings and a 49% rise in revenues. In 2022, Uber generated $1.1 billion in free cash flow (excluding HMRC VAT demands). Thus it needed help paying its $5 billion in net debt.
Furthermore, the stock price seems well-valued since the P/S ratio is at a record low, and the future P/E ratio is close to the market value. Yet opinions on Uber’s future are mixed. A predicted impending recession might be a challenge for Uber. In my opinion, Uber is an excellent long-term investment due to its attractive stock value and high growth areas.
Featured Image: Pexels @ Max Chen