Uber Technologies, Inc. (NYSE:UBER) is one of those brands that seems to be around for a long time. After a decade of leading the ride-hailing business, Uber went public with a US$75b valuation in May 2019. Yet, over 2 years later, the market cap has not budged all that much to US$89b. The company posted a loss in its most recent financial year of US$6.8b and a latest trailing-twelve-month loss of US$3.9b, shrinking the gap between loss and breakeven.
While Uber hit quite a few bumps on the road, it looks like it still has more road ahead before reaching profitability.
Although the business model is rather simple and allows for high flexibility of both the contractors and customers, things are more complicated in the real world. Legal and regulatory environment can be vastly different throughout the world, with labor unions fighting back, but also employees quoting low wages and job uncertainty as growing concerns.
Uber keeps expanding its Freight division by acquiring Transplace for US$2.25b in stock and cash. Since 2017, Transplace has been under the private equity platform TPG Capital. This move looks to strengthen the shipper network by combining it with one of the supply chain innovation leaders.
Meanwhile, gig workers went on a day-long strike the last Wednesday, protesting in front of the companys' headquarters. Gig workers from both Uber and its main competitor Lyft united to complain about low wages and poor work conditions.
Protests outside of Uber headquarters on July 21, 2021. Source: Kari Paul/The Guardian
The most pressing concern for investors is Uber Technologies' path to profitability. We've put together a brief outline of industry analyst expectations for the company, its year of breakeven, and its implied growth rate.
Uber Technologies is bordering on breakeven, according to the 31 American Transportation analysts. They anticipate the company to incur a final loss in 2022 before generating positive profits of US$596m in 2023. The company is therefore projected to break even around 2 years from now. To meet this breakeven date, we calculated the rate at which the company must grow year on year. It turns out an average annual growth rate of 68% is expected, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
Underlying developments driving Uber Technologies' growth aren't the focus of this broad overview, though, bear in mind that generally, a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.
Yet, there's one issue worth mentioning. Uber Technologies currently has a relatively high level of debt. Generally, the rule of thumb is debt shouldn't exceed 40% of your equity, which in Uber Technologies' case is 56%. A higher level of debt requires more stringent capital management, which increases the risk around investing in the loss-making company.
While gig-economy is an important addition in the 21st century, accommodation for the flexible lifestyle of younger generations, there are still social problems to solve before it can work like envisioned.
Furthermore, a Moviepass example showed that the company could operate only for so long with a loss. Eventually, Uber will have to reach profitability, and it can only happen through a hike in prices or a breakthrough in technology.
There are too many aspects of Uber Technologies to cover in one brief article. Still, the key fundamentals for the company can all be found in one place Uber Technologies' company page on Simply Wall St. We've also put together a list of pertinent factors you should look at:
- Valuation: What is Uber worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether the market currently misprices Uber Technologies.
- Management Team: An experienced management team at the helm increases our confidence in the business - take a look at who sits on the Uber Technologies board and the CEO's background.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.