Shaping The Future, Calculated Growth And Resilient Expansion Amidst Market Shifts

Key Takeaways

• Expansion in trips and gross bookings demonstrates strong demand for Uber's services, promising future revenue growth through diversification and new market segments.
  
• Strategic advancements in autonomous vehicle technology and significant growth in Uber One subscription revenue highlight efforts towards operational efficiency and customer loyalty, aiming to improve profitability and secure sustained growth.
  
• Regulatory changes, competitive pressures, advances in autonomous vehicles, and currency fluctuations could negatively impact Uber's margins, market share, and 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.

• The substantial increase in trips and growth in gross bookings on a constant currency basis suggests strong and continuing demand for Uber's services, which can significantly boost future revenue growth.
  
• Record adjusted EBITDA growth of 82% year-over-year, alongside generating $4.2 billion of free cash flow over the trailing 12 months, indicates a robust improvement in profitability and operational efficiency that could favorably impact net margins.
  
• Uber's strategic initiatives and new product launches, especially in areas of urban and suburban mobility, signal a diversification of revenue sources and the potential to capture new market segments, further driving revenue growth.
  
• The advancement in autonomous vehicles (AV) technology and Uber's partnership approach with AV companies can lower operational costs in the long run and enhance the service offering, potentially increasing net margins through reduced reliance on human drivers.
  
• The growth in Uber One subscription revenue, now exceeding $1 billion, and the focus on improving its subscription model highlight efforts to enhance customer loyalty and generate stable revenue streams, thus supporting sustained revenue and earnings growth.

Assumptions

• Analysts are assuming Uber Technologies's revenue will grow by 15.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 10.9% in 3 years time.
• Analysts expect earnings to reach $6.5 billion (and earnings per share of $3.11) by about July 2027, up from $1.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.1 billion in earnings, and the most bearish expecting $3.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.7x on those 2027 earnings, down from 111.7x today. This future PE is greater than the current PE for the US Transportation industry at 24.6x.
• Analysts expect the number of shares outstanding to grow by 3.25% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Risks

• The introduction of minimum wage regulations in cities like Seattle and New York could increase labor costs, affecting the net margins of Uber's Delivery segment.
  
• Changes in EU platform work directives might lead to increased regulatory costs or operational adjustments, impacting earnings particularly in the European market.
  
• Competitive pressures from companies like DiDi in Latin America, despite their capital discipline, could lead to increased promotional spending, affecting net margins.
  
• Technological advancements in autonomous vehicles (AV) by companies like Tesla could introduce new competition, potentially affecting Uber's market share and revenue in the long term.
  
• Currency fluctuations, especially the Argentine peso's devaluation, present foreign exchange headwinds that could impact overall revenue growth, particularly in the Mobility segment.

Valuation

• The analysts have a consensus price target of $86.66 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 $100.0, and the most bearish reporting a price target of just $65.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $59.2 billion, earnings will come to $6.5 billion, and it would be trading on a PE ratio of 37.7x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $74.3, the analyst's price target of $86.66 is 14.3% 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.