Autonomous Partnerships And Advertising Innovations Will Turbocharge Growth And Margins

Key Takeaways

• Expanding into less dense markets and focusing on Uber One memberships and advertising could drive growth and improve net margins.
  
• Partnerships in autonomous vehicles and share repurchase programs aim to enhance operational capabilities and increase earnings per share.
  
• Rising insurance costs, market expansion challenges, competition in autonomous vehicles, and dependence on emerging verticals may threaten Uber's revenue growth.

Catalysts

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

• Expansion into less dense markets is expected to drive future growth as Uber invests in demand and supply in these areas, thereby increasing liquidity and improving service levels, positively impacting revenue.
  
• The significant increase in Uber One memberships and a focus on improving the customer experience is likely to boost user frequency and retention, contributing to higher net margins through repeated use of Uber's services.
  
• Growth opportunities in advertising, particularly in sponsored listings and Journey Ads, are anticipated to enhance revenue streams and improve margins by monetizing user sessions more effectively and increasing driver earnings through new revenue streams.
  
• Advances in autonomous vehicle partnerships, such as with Waymo in select cities, are poised to expand Uber's operational capabilities and potentially reduce costs, leading to improved net margins as the technology matures and scales.
  
• Uber's capital allocation strategy focuses on share repurchase programs, expected to reduce the share count and enhance earnings per share (EPS) by returning excess capital to shareholders.

Uber Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Uber Technologies's revenue will grow by 15.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 13.2% in 3 years time.
• Analysts expect earnings to reach $8.4 billion (and earnings per share of $3.85) by about December 2027, up from $4.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $9.9 billion in earnings, and the most bearish expecting $4.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.5x on those 2027 earnings, down from 29.2x today. This future PE is greater than the current PE for the US Transportation industry at 28.0x.
• Analysts expect the number of shares outstanding to grow by 1.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Uber Technologies Future Earnings Per Share Growth

Risks

• Rising insurance costs, particularly in the U.S., could impact Uber's profit margins as these costs continue to increase, albeit at a slower rate.
  
• Expanding into less dense markets presents operational challenges that could affect revenue generation if supply and demand dynamics are not appropriately managed and scaled.
  
• Increased competition and potential technology execution risks in autonomous vehicle partnerships may affect Uber’s strategic growth and long-term revenue, especially if partnerships like the ones with Waymo do not yield expected returns or expansions.
  
• Consumer price sensitivity due to heightened ride prices, particularly in high-cost states, may slow transaction growth and affect revenue negatively, as noted in the elasticity of demand where higher prices reduce ride numbers.
  
• Dependence on new verticals like advertising and Uber Direct, which are still in growth phases, could present risks to achieving consistent revenue growth if these businesses do not scale as anticipated or fail to achieve a material share of bookings.

Valuation

• The analysts have a consensus price target of $90.05 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 $120.0, and the most bearish reporting a price target of just $75.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $63.8 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of $61.03, the analyst's price target of $90.05 is 32.2% higher.
• 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.