Uber stock (NYSE: UBER) has declined down by about 23% year-to-date trading near $35 per share, underperforming the S&P 500, which is down by about 6% over the same period. This has been driven by headwinds in its ride-sharing business through the Covid-19 pandemic, concerns about inflation on the company’s costs, and a broader market rotation out of high-growth and loss-making companies, as the U.S. Federal reserve plans multiple interest rate hikes. That being said, there have actually been several positive developments for the company, which could make the stock a buy.
Firstly, Uber’s overall growth has remained strong through the pandemic. The company grew its top line by about 57% to $17.5 billion in 2021, and 2021 revenues were actually 34% ahead of 2019 pre-pandemic levels. Although all the growth over the last two years came from the food delivery business, which could face some pressure as the Covid-19 pandemic wanes, we still expect the business to expand following the pandemic considering that it performed well in 2021 despite the re-opening of restaurants. Moreover, Uber’s ride-hailing and freight business should also post robust growth, driven by rising travel demand and recent acquisitions.
The economics of Uber’s business is also poised to get better. While the delivery business, which is now Uber’s largest segment, was historically unprofitable, its adjusted EBITDA turned positive over 2021. Take rates for the delivery business, which are the percentage of gross billings that Uber books as revenue, surged to 18% in Q4 2021, up from 13.5% in 2020. Margins for the ride-hailing business, which is already relatively thick (about 25% adjusted EBITDA in Q4) could also pick up as demand rises and inflation cools. Uber’s advertising business could also provide an upside to margins in the long run given the company’s large base of about 118 million users. Uber reported an annual revenue run rate of about $225 million for its ad operations toward the end of 2021 and Uber projects sales of $1 billion by 2024.
Now, despite the strong growth and prospects for margin improvement, Uber stock trades at under 2.5x consensus 2022 revenues, well below delivery rival DoorDash stock, which trades at almost 6x projected 2022 revenue. Considering that Uber’s overall growth is likely to come in at over 50% in 2022, with Uber Revenues likely to stand at close to $27 billion, per our estimates (about 2x pre-pandemic levels), the stock looks attractive. We value Uber stock at about $50 per share, marking a 50% premium over the current market price. See our analysis on Uber Valuation: Expensive or Cheap for more details.
Here you’ll find our previous coverage of Uber Stock, where you can track our view over time.
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| Returns | Feb 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| UBER Return | -10% | -20% | 13% |
| S&P 500 Return | -5% | -10% | 92% |
| Trefis MS Portfolio Return | -3% | -12% | 246% |
[1] Month-to-date and year-to-date as of 2/23/2022
[2] Cumulative total returns since the end of 2016
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
