AV Partnerships Will Face Mounting Challenges Amid Stiff Competition

Key Takeaways

• Expansion into less dense and international markets may challenge profitability due to higher car ownership and lower user frequency.
  
• Aggressive investments in autonomous vehicles carry significant uncertainties and may not swiftly improve profitability.
  
• Strong demand, AV initiatives, market leadership, and margin expansion in delivery enhance Uber's financial outlook with potential positive revenue and net margin impacts.

Catalysts

Develops and operates proprietary technology applications in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia Pacific.

• Uber's strategic expansion into less dense and international markets could face challenges with profitability, as these areas often have higher car ownership and may yield lower user frequency. This poses a risk to sustaining current revenue growth and margin expansion due to potential slower adoption rates.
  
• The company’s focus on affordability and keeping mobility prices low while contending with pricing competition, especially with long-term elasticity adjustments, could pressure revenue growth. If these pricing strategies do not lead to increased user adoption or market share gains, revenue growth prospects might be overstated.
  
• Uber’s aggressive investment in autonomous vehicle (AV) partnerships and initiatives represents potential future revenue but also involves significant operational challenges and uncertainties. These investments might not translate into profitability improvements as quickly as anticipated, possibly affecting future earnings projections.
  
• Increased competition in key markets from solid competitors like Lyft in the U.S. and others internationally poses a threat to Uber's market position and could lead to compressed net margins if Uber has to increase spending on incentives and services to maintain its leading position.
  
• Although the delivery segment shows strong growth potential, actual profitability margins from new sectors like grocery and retail remain nascent, similar to early-stage restaurant delivery margins. This could constrain future earnings if the integration and scaling of such services do not progress as expected.

Uber Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Uber Technologies's revenue will grow by 14.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 22.4% today to 13.4% in 3 years time.
• Analysts expect earnings to reach $8.8 billion (and earnings per share of $4.14) by about May 2028, down from $9.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.6 billion in earnings, and the most bearish expecting $6.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.0x on those 2028 earnings, up from 18.2x today. This future PE is greater than the current PE for the US Transportation industry at 23.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.33%, as per the Simply Wall St company report.

Uber Technologies Future Earnings Per Share Growth

Risks

• Uber's audience and trip growth metrics indicate a strong demand, with 170 million monthly active consumers and trip growth of 18%. This engagement drives robust revenue streams, impacting overall revenue positively.
  
• The company's autonomous vehicle (AV) initiatives, including partnerships with firms like Waymo, show high utilization rates and consumer interest, which could lead to an increase in operational efficiency and reduce costs, affecting earnings positively.
  
• Uber is the market leader in many of its operating regions, including competitive marketplaces such as Europe and the U.S., ensuring competitive pricing strategies, which could stabilize or increase net margins.
  
• Uber's delivery segment has shown significant margin expansion, driven by factors like advertising revenue and improved operational efficiencies, indicating potential for positive net margin impacts.
  
• Insurance cost estimates have become more favorable, with anticipated moderate increases that are lower than previous years, which can reduce cost burdens and thus positively affect net margins.

Valuation

• The analysts have a consensus price target of $88.421 for Uber Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $115.0, and the most bearish reporting a price target of just $68.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $65.8 billion, earnings will come to $8.8 billion, and it would be trading on a PE ratio of 26.0x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $85.83, the analyst price target of $88.42 is 2.9% higher. 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.