Growth At A Reasonable Price With Ackman Backing

Introduction: Uber as an Attractive Growth Investment Opportunity

Uber Technologies, Inc. (UBER) has emerged as a compelling growth investment opportunity, especially following the recent endorsement by renowned investor Bill Ackman. While Uber’s stock performance over the past year has been underwhelming, delivering a total return of approximately 4% compared to the S&P 500’s 22%, the company has demonstrated strong fundamentals, including impressive revenue growth and significant margin improvements. Despite investor skepticism fueled by concerns over the rise of autonomous vehicles, Uber is well-positioned to not only coexist with but also benefit from this emerging technology. Ackman’s $2.3 billion investment in Uber underscores his confidence in the company’s long-term potential, aligning with the view that Uber is undervalued given its robust growth prospects and strategic positioning in the market.

Company Overview: Diversified Business with Global Reach

Uber operates as a technology platform connecting consumers with service providers across multiple segments. Its primary business, contributing 52% of revenue, is its mobility division, which facilitates ridesharing and other transportation services. The delivery segment, accounting for 33% of revenue, has grown significantly, leveraging the shift towards online ordering and food delivery. Uber’s freight business, though still striving for profitability, rounds out the company’s offerings. With operations spanning 70 countries and approximately 50% of its revenue generated in the U.S., Uber has established a formidable global presence.

Historically, Uber faced challenges in achieving profitability, but the past year has marked a turning point. The company reported a net income of nearly $10 billion, with a notable one-time tax revaluation benefit of $6.4 billion. Even after adjusting for this, Uber’s profit growth remains impressive, highlighting its operational efficiency and strategic execution. This profitability milestone, combined with its diversified business model and global footprint, positions Uber as a resilient player in the evolving technology landscape.

Strong Growth Prospects: Expanding Markets and Autonomous Vehicles

Uber’s revenue has grown at a compound annual growth rate (CAGR) of 28% over the past five years, driven by robust performance in both its mobility and delivery segments. Looking ahead, the company is poised to capitalize on increasing market penetration, both internationally and in smaller U.S. cities. A significant growth catalyst is the integration of autonomous vehicles (AVs), which Uber is embracing through strategic partnerships.

One of Uber’s most notable partnerships is with Waymo, Alphabet’s autonomous driving subsidiary. While Waymo operates independently in markets like Los Angeles and San Francisco, its collaboration with Uber in Phoenix, with plans to expand to Austin and Atlanta in 2025, highlights the mutual benefits of their alliance. Autonomous vehicles address two critical challenges for Uber: supply constraints, as driver shortages limit growth, and cost efficiency, as AVs reduce the need for human drivers, thereby lowering operational expenses. Additionally, with multiple AV providers like Tesla and Zoox expected to enter the market, Uber’s platform will serve as an aggregation point, allowing consumers to compare and choose between various options seamlessly.

Uber CEO Dara Khosrowshahi emphasized the synergy between Uber and AV operators during the Q4 earnings call, noting that Uber’s network drives higher utilization and customer satisfaction for AVs. This strategic positioning not only enhances Uber’s value proposition but also solidifies its role as a key player in the autonomous vehicle ecosystem. With Wall Street expecting Uber to sustain its revenue growth at 15% for 2025 and 2026, followed by a slight deceleration to 14% in 2027, the company is well-positioned to deliver on its growth trajectory.

Bill Ackman’s Investment in Uber: A Vote of Confidence

Bill Ackman, a well-known investor with a track record of success, recently announced a $2.3 billion stake in Uber through his firm, Pershing Square Capital Management. Ackman’s endorsement is significant, as he has historically identified high-quality businesses with strong growth potential at attractive valuations. His past successes include investments in Chipotle Mexican Grill and Hilton Worldwide, demonstrating his ability to spot compelling growth opportunities. Uber now represents Ackman’s largest position, reflecting his high conviction in the company’s future.

Ackman views Uber as a high-quality business trading at a discount to its intrinsic value, with autonomous vehicles acting as a major catalyst rather than a disruptive force. While investors should always conduct their own due diligence, Ackman’s backing adds credibility to Uber’s growth narrative. His involvement signals that Uber is not only a growth story but also a company with the potential to generate substantial returns for shareholders.

Attractive Valuation: A Compelling Growth at a Reasonable Price

Uber’s valuation metrics present an attractive investment opportunity. The stock currently trades at 30x consensus full-year 2025 earnings per share (EPS) and 22x full-year 2026 EPS, representing a moderate premium to the broader market. However, this premium is justified by Uber’s superior growth prospects compared to the S&P 500. For context, Uber’s closest peers, Lyft and DoorDash, trade at 13x and 42x consensus 2025 EPS, respectively. Lyft’s lower multiple reflects its smaller scale and focus on the mobility segment, while DoorDash’s higher multiple is driven by its pure-play exposure to the delivery market.

Using a blended peer multiple approach, with weights assigned based on Uber’s revenue split (68% mobility, 32% delivery), Uber’s implied fair value would be approximately 22x 2025 EPS. The company’s current valuation of 30x represents a premium to this blended multiple, but this premium is warranted given Uber’s larger scale, diversification across businesses, and potential for cross-selling opportunities and economies of scale. Furthermore, compared to other companies poised to benefit from autonomous vehicles, such as Tesla, which trades at 124x 2025 EPS, Uber’s valuation appears particularly attractive.

Risks and Challenges: Navigating the Path Ahead

While Uber’s growth prospects are compelling, there are risks to consider. The biggest risk is the possibility that autonomous vehicle providers could bypass Uber and go directly to consumers, potentially undermining Uber’s role as an aggregation platform. However, this scenario is less likely given the increasing number of AV providers entering the market. Uber’s platform, with its vast customer base and ability to offer a range of options, is likely to remain the go-to destination for consumers.

Another risk is the potential acquisition of a competitor, such as Lyft, by a larger player like Amazon or DoorDash. Such a deal could create a more formidable competitor, intensifying competition and pressuring Uber’s margins. While this is a concern, Uber’s global scale and diversified business model provide a strong defense against competitive pressures.

In conclusion, Uber presents a compelling investment opportunity for those seeking growth at a reasonable price. The company’s strong fundamentals, attractive valuation, and potential to benefit from autonomous vehicles make it an attractive addition to growth-oriented portfolios. Bill Ackman’s endorsement further bolsters the case for Uber, signaling that it is not only a growth story but also a company with the potential to deliver significant returns. As Uber continues to execute on its strategic initiatives, it is well-positioned to unlock long-term value for its shareholders.