Uber Technologies (NYSE: UBER) and its industry-leading mobility platform went public in 2019 at a price per share of roughly $45. At the time, it had an operating loss of over $4 billion annually. Today, Uber's share price is has risen to about $60. However, and much more importantly, the company delivered an operating income of $2.7 billion last year.
Free-cash-flow (FCF) generation tells a similar story. The company went from burning around $4 billion per year early in its publicly traded history to generating $6 billion in FCF over the trailing 12 months.
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Thanks to its five-year transformation from a "unicorn" start-up company to a more mature (and profitable) enterprise -- yet only seeing a minimal share price increase -- now may be the time to buy the new-look business.
Here are four reasons why there is still time to buy this promising growth stock.
1. Uber is the top dog in an emerging industry
Uber's leading mobility network connects its 161 million monthly active platform consumers with its nearly 8 million drivers and a growing fleet of autonomous vehicles. Whether moving people, groceries, or freight, Uber's massive platform provides mobility options for more than 10,000 cities worldwide, resulting in 31 million trips per day.
Thanks to this widespread usage, Uber's mobility segment currently holds a dominant 75% market share of the ride-sharing niche in the United States and a leading 25% share globally. Meanwhile, the company's delivery segment (Uber Eats) holds a 23% share of the meal delivery business, making it the clear No. 2 provider in the U.S., only trailing DoorDash's 67% share.
With the ride-sharing and food delivery industries expected to grow by a mid-double-digit percentage for years to come in the U.S. -- with potentially even faster rates internationally -- Uber should thrive thanks to its top dog status.
Image source: Getty Images.
2. Uber has developed a strong brand
The main reason I'm optimistic about Uber remaining the industry leader is its widely recognizable brand. The company recently ranked 61st on Kantar BrandZ's 2024 Most Valuable Global Brands list, rising 35 positions from its spot at 96 last year. Kantar BrandZ generates its rankings by combining a brand's economic and financial value with its value to consumers and business decision-makers through an array of studies and reports.
It is important to investors that Uber landed on this list because the stocks tied to Kantar's top 100 list each year have outperformed the S&P 500 since 2006 (312% growth for the S&P 500 compared to 400% for Top 100 brands and 441% for Top 10 powerful brands).
Similarly, Comparably's Top 100 Global Brands list measures how customers perceive a brand's quality, and it placed Uber 90th in its rankings. Thanks to the global recognition and overall customer satisfaction inherent in Uber's brand, I believe the company is trenching a widening moat around its operations, protecting itself from new competitors.
3. Uber has improving margins and cash generation
While Uber no longer delivers triple-digit revenue growth rates, as it briefly did in 2022, its turnaround in margin profile and improved cash generation has been remarkable. As Uber's massive two-sided network continued to scale -- and grew smarter with the underlying data provided from every trip it serves -- the company's operating and FCF margins flipped from deeply negative to positive.
UBER Operating Margin (TTM) data by YCharts
Even after accounting for stock-based compensation, Uber now boasts a robust FCF margin of 10% and has quickly morphed into a cash cow.
And this could be just the beginning.
Now counting 25 million Uber One members -- a figure that grew by 70% from last year -- the company's membership program generates high-margin, consistent cash flows.
The Uber One program is similar to Amazon's Prime offering or Costco Wholesale's membership. These programs offer lower prices and more incentives for members in exchange for higher customer loyalty and increased spending. Uber's new members have proven highly valuable to the company, spending 4 times more than non-members while already accounting for 40% of the company's bookings.
Meanwhile, Uber's high-margin advertising continues to flourish, growing by 80% in the company's last quarter and achieving a $1 billion run rate in 2024.
Partially thanks to these budding high-margin products, management believes FCF will grow between 30% and 40% over the next three years, highlighting that the best is yet to come.
4. Uber has a reasonable valuation
Despite being the top dog, the most recognizable brand, and the most profitable operator in its niche, Uber's valuation remains quite reasonable.
UBER CART DASH LYFT PS Ratio data by YCharts
Compared to its three peers, Uber's price-to-sales (P/S) ratio is the lowest in the group, outside of Lyft, which has yet to deliver an operating profit.
Furthermore, Uber's FCF yield of 3.2% (after removing stock-based compensation) equals the average of the S&P 500. Analysts expect Uber to grow sales by 16% in 2025, exceeding the S&P 500's long-term averages, so it seems to trade at a discounted valuation.
While the company's stock has dropped 30% from its highs after the market worried about Waymo partnering with Moove (instead of Uber again) to expand into Miami, I believe these fears are overdone. Since Uber has a partnership agreement and equity stake in Moove (along with seats on its board), the company isn't being left in the dark by any means.
Ultimately, thanks to these four reasons, combined with the stock's recently discounted price, Uber is a tantalizing investment for investors looking to merge high growth potential with robust cash generation.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Josh Kohn-Lindquist has positions in Costco Wholesale and Uber Technologies. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, DoorDash, and Uber Technologies. The Motley Fool recommends Instacart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
