Cross Platform Users And Autonomous Vehicles Will Constrain Margins And Keep Shares Fairly Valued

Catalysts

About Uber Technologies

Uber Technologies operates a global platform that connects consumers with mobility, delivery and other earning and work opportunities.

What are the underlying business or industry changes driving this perspective?

• Although cross platform users currently represent about 20% of consumers in markets with both Mobility and Delivery and spend around 3x more than single product users, expanding this behavior depends on continued product tweaks such as in app tabs and contextual upsell. These changes may take time to translate into higher revenue and more stable earnings.
• Although the grocery and retail offering has reached an approximately US$12b gross bookings run rate and contributes variable positive margins, its faster growth than restaurant delivery could pressure overall unit economics and marketing spend as Uber leans in. This may weigh on segment margins even as it supports long term revenue growth.
• While early autonomous vehicle partnerships with NVIDIA and Waymo aim to create a hybrid network of human drivers and AVs, management expects AV operations to remain unprofitable for a few years. Ongoing capital and operating spend on fleets, data collection and infrastructure could cap Mobility margins even if trips and gross bookings rise.
• Although multiple gigs and Uber AI Solutions open up new kinds of work beyond transportation and may create another line of business, the need to build customer demand, tools and quality control means contribution to earnings could be modest compared with Mobility and Delivery. This may limit near term impact on overall profit growth.
• While expansion into sparse geographies and lower cost products like Wait & Save, 2 wheelers and shared rides supports audience gains and trip growth in suburban and lower density areas, these use cases often carry lower average pricing. This can dilute gross bookings growth relative to trips and constrain net margin improvement.

Assumptions

This narrative explores a more pessimistic perspective on Uber Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Uber Technologies's revenue will grow by 10.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 33.5% today to 12.4% in 3 years time.
• The bearish analysts expect earnings to reach $8.2 billion (and earnings per share of $3.92) by about January 2029, down from $16.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $17.7 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.2x on those 2029 earnings, up from 10.5x today. This future PE is lower than the current PE for the US Transportation industry at 33.7x.
• The bearish analysts expect the number of shares outstanding to decline by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Strong trip growth in Mobility and Delivery, including record events such as more than 130 million trips and over US$2 billion in gross bookings on Halloween weekend, could support higher revenue and cash generation than the market currently expects. This could push the share price above a flat outcome and influence earnings and free cash flow.
• Growing penetration of cross-platform users and Uber One membership, with cross-platform consumers spending around three times more and retaining 35% better than single-product users, may steadily lift average revenue per user and customer lifetime value. This could support higher net margins and earnings than implied by an unchanged share price.
• Expansion into grocery and retail at an approximately US$12 billion gross bookings run rate, along with positive variable contribution, could deepen Uber’s role in local commerce over time and open a larger addressable base for Delivery. This may lead to structurally higher segment revenue and operating profit than a flat share price would reflect.
• Progress in autonomous vehicles, including partnerships with NVIDIA and Waymo and the ability to collect rideshare-specific driving data at scale, might eventually reduce unit costs and improve vehicle utilization. This could improve Mobility margins and long-term earnings power beyond what a stable share price assumes.
• Ongoing gains in sparse geographies, lower-cost products such as Wait & Save, and insurance savings that management expects to reach hundreds of millions of dollars in 2026 could support further trip growth and lower fares without sacrificing profitability. This may strengthen revenue growth and EBITDA and challenge the idea that the share price will stay roughly unchanged.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Uber Technologies is $83.63, which represents up to two standard deviations below the consensus price target of $110.43. This valuation is based on what can be assumed as the expectations of Uber Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $150.0, and the most bearish reporting a price target of just $73.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $66.7 billion, earnings will come to $8.2 billion, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $84.26, the analyst price target of $83.63 is 0.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.