Investments In AV Technology Will Shape Future Expansion Despite Uncertainties

Key Takeaways

• Uber's focus on autonomous vehicles and fleet electrification aims to boost revenue, reduce operating costs, and enhance margins efficiently.
  
• Expansion of Uber One and penetration into less dense areas is set to drive user growth, enhance customer loyalty, and improve profitability.
  
• Significant uncertainty in autonomous vehicle commercialization, high insurance costs, FX risks, and expansion investments may pressure Uber's short-term margins and earnings.

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 investment in autonomous vehicle (AV) technology is expected to position them as a key market partner, which could significantly boost their mobility revenue as AVs start scaling up in the future.
  
• Expansion of the Uber One membership program, which grew by 60% year-on-year, is likely to drive increased consumer loyalty and recurring revenue streams, benefiting net margins through higher customer retention and lowered churn rates.
  
• Strategic focus on penetrating less dense areas might increase Uber's user base and trip frequency, potentially enhancing overall revenue growth without proportionately increasing costs, thus improving earnings.
  
• Developing supply initiatives such as expanding fleet supply and investing in depots with electrification for autonomous fleets is poised to reduce operational costs related to driver supply and optimize net margins by improving efficiency.
  
• Leveraging technological advances to manage insurance costs, along with regulatory reforms, is expected to ease operational expenses, which would contribute to better profitability margins in the rides segment.

Uber Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Uber Technologies's revenue will grow by 14.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 22.4% today to 13.3% in 3 years time.
• Analysts expect earnings to reach $8.8 billion (and earnings per share of $4.12) by about March 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 26.1x on those 2028 earnings, up from 15.2x today. This future PE is greater than the current PE for the US Transportation industry at 25.8x.
• 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 7.12%, as per the Simply Wall St company report.

Uber Technologies Future Earnings Per Share Growth

Risks

• There is significant uncertainty around the commercialization timeline for autonomous vehicles (AVs), which could lead to delays and unpredictability in realizing anticipated revenue and profit increases from investments in AVs. This uncertainty could impact future revenue and net margins.
  
• Insurance costs remain a significant expense for Uber, particularly in the U.S., where liability coverage requirements are high. Although there are some signs of stabilization, continued high insurance costs could impact operating margins and net income.
  
• Foreign exchange (FX) fluctuations present a continual risk, particularly with Uber's substantial international operations. FX volatility can impact revenue growth when converted to U.S. dollars, as seen in the headwinds from regions like Latin America, and may affect overall earnings and margins if not managed effectively.
  
• Uber is investing heavily in expanding its network into less dense areas and in supply incentives, particularly within its Mobility segment, which, although potentially beneficial in the long term, might lead to increased operational costs and impact short-term net margins and earnings.
  
• The rapid growth in membership and expansion of services like Uber Teens, while indicating increased demand, could strain existing resources and infrastructure, potentially affecting service quality and operational efficiency, which could impact customer satisfaction, retention, and therefore future revenues and earnings.

Valuation

• The analysts have a consensus price target of $89.104 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 $65.7 billion, earnings will come to $8.8 billion, and it would be trading on a PE ratio of 26.1x, assuming you use a discount rate of 7.1%.
• Given the current share price of $71.55, the analyst price target of $89.1 is 19.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.