Hybrid Human And Autonomous Network Will Redefine This Mobility Platform’s Long-Term Potential

Catalysts

About Uber Technologies

Uber Technologies operates a global platform that connects riders, drivers, consumers, couriers and merchants across Mobility, Delivery and related services.

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

• Expansion of cross platform usage across Mobility, Delivery and Uber One membership, where cross platform users currently spend 3x more and retain 35% better than single product users, can reinforce recurring revenue and support more stable earnings over time.
• Growth in a hybrid network that blends human drivers with autonomous vehicles through partnerships such as NVIDIA, Waymo and Stellantis, along with Uber's ability to collect rideshare specific AV data at scale, can improve unit economics per trip and support long term net margin expansion.
• Rapidly scaling grocery and retail Delivery, now at about a US$12b gross bookings run rate and described as growing meaningfully faster than restaurant Delivery while being variable contribution positive, can broaden the addressable revenue base and support overall EBITDA growth.
• Ongoing push into sparse geographies and more affordable products like Wait & Save, Moto, shuttles and shared rides, where sparse markets are growing at roughly 1.5x denser markets and penetration is described as only around 20% of the opportunity, can support sustained trip growth and help leverage fixed costs to support margin resilience.
• Growing ecosystem effects from multi gig opportunities such as Uber AI Solutions, which adds higher skilled digital work alongside Mobility and Delivery, can deepen earner engagement, support marketplace liquidity and ultimately contribute incremental revenue and operating income beyond the core trip businesses.

Assumptions

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

• The bullish analysts are assuming Uber Technologies's revenue will grow by 17.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 33.5% today to 21.8% in 3 years time.
• The bullish analysts expect earnings to reach $17.7 billion (and earnings per share of $8.43) by about January 2029, up from $16.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $8.2 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.0x on those 2029 earnings, up from 10.7x today. This future PE is lower than the current PE for the US Transportation industry at 33.4x.
• The bullish 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?

• Autonomous vehicles are currently loss making for Uber and management explicitly expects AV operations to remain unprofitable for a few years, so if real world data collection, partner software and fleet deployment take longer to mature than hoped, AV investments could weigh on Mobility profitability and slow growth in net margins and earnings over time.
• The push into sparse geographies, low cost products such as Wait & Save, Moto, shuttles and shared rides, and early life Uber One membership incentives all involve accepting lower unit economics initially, so if newer cohorts of users and members do not reach the expected maturity and usage levels, this could result in weaker revenue per trip and softer EBITDA and net margin outcomes than anticipated.
• Grocery and retail Delivery are described as growing meaningfully faster than restaurant Delivery and are a source of new users, yet this category also attracts well funded competitors in regions like Europe, so if competitive intensity in food and local commerce requires heavier discounting or higher marketing spend, it could pressure Delivery contribution and limit earnings growth.
• Uber’s insurance costs are material and management is targeting hundreds of millions of dollars in savings that they intend to pass on through lower fares, so if regulatory changes, accident trends or less effective risk sharing with insurers reverse some of these gains, it could force higher fares or lower take rates and negatively affect revenue growth and net margins.
• The multiple gigs and Uber AI Solutions initiatives depend on building a sustainable market for new kinds of work, including higher skilled digital tasks, so if customer demand for these services does not scale or if execution issues arise, the expected incremental revenue and operating income from this ecosystem expansion may not materialize, which would leave long term earnings more reliant on the core trip businesses.

Valuation

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

• The assumed bullish price target for Uber Technologies is $137.49, which represents up to two standard deviations above the consensus price target of $110.72. 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 bullish 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 bullish analyst cohort, you'd need to believe that by 2029, revenues will be $81.4 billion, earnings will come to $17.7 billion, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $85.54, the analyst price target of $137.49 is 37.8% 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.