Uber (NYSE:UBER): Finally mature and profitable, but with more growth to come

A decade and a half since it was founded, Uber (NYSE:UBER) is finally a mature company. It is about to report an annual profit for the first time ever, has either won or favourably settled all the wars it has been in, and has the right management team to take it to the next phase of growth. And yes, there is more growth to come.

Recap of the history of Uber

If you don’t know who Uber is, you’ve probably been living on Planet Mars. But for those who don’t, let’s recap. Uber is a company that provides mobility services, consumer delivery services and even industrial freight services.

It all began in San Francisco in 2008 when Travis Kalanick and Garrett Camp became frustrated with taxi services in that city and developed the app that could hail taxis. It was inspired in-part by James Bond tracking his car with his Sony Ericsson in Casino Royale.

Take a look at its first pitch deck from 2008 that helped it raise US$200,000 – particularly slide 20 when it talks about a Best and Worst case scenario. The worst-case scenario was that it remained a 10-car, 100-client service in the Fog City, but the Best-Case is that it becomes a market leader with $1bn+ in yearly revenue. Doesn’t seem like they imagined a scenario where it would be US$32bn a year company!

Not making friends, but good at raising money

Gone are the days of wondering where your taxi is, fishing your wallet for coins to pay. How many taxi drivers get users who just jump out because they are so used to frictionless Uber? Imagine a business that gets $50-100 every time someone enters or exits a city. That is Uber.

As it grew, it encountered opposition from the taxi industry and sympathetic lawmakers. However, that did not stop it from continuing to raise money, culminating in a 2019 NYSE IPO. Why? Because venture capitalists thought that the law would give way before Uber (and rightly so). When a business model is so badly broken, consumers will go out of their way to find a better service, even to the point of breaking the law.

Where it is at and where it is headed

Uber is now run by Dara Khosrowshahi, who succeeded Kalanick in 2017. He cleaned up the image of the company, which has suffered due to revelations about the culture Kalanick had created. After fighting laws that labelled drivers as employees, the company has waved the white flag, declaring that it could cope under any regulatory framework (although it would inevitably have to raise prices in some areas).

In its most recent quarter, it reported a profit of US$221m and expects to report an annual profit for the first time ever. And now, only 44% of its revenue comes from ‘mobility’ – delivery is 34% and freight is 21%. Both mobility and freight see over 50 billion bookings per year. It faced intense competition on all fronts, but saw off most of it.

Looks expensive, but really isn’t

It is easy to think that when a company like Uber is so dominant, it cannot get bigger. The company claims otherwise, telling investors it has more growth to come, launching Uber for teens in America and Uber for taxis in Japan. More and more members are joining its loyalty program, and its machine learning tools are getting stronger and stronger.

Consensus estimates for 2023, drawn from 45 analysts, call for $37.1bn in revenue (growth of over 19%) and $0.38 EPS, equating to a $769m profit. In 2024, analysts expect $43.1bn in revenue (up 16%) and $1.13 in EPS, or a $2.2bn profit. This puts it at a P/E of 43.8x, but a PEG of just 0.64x!

Continued growth is expected in future years. In 2025, $50bn in revenue and a $3.5bn profit. By 2032, analysts expect $97bn in revenue and a $13bn profit.

A good growth opportunity

The mean target price for Uber is US$58.92, a 19% premium to the current share price. Our valuation of Uber is US$61.29 per share – using a DCF model with consensus estimates and a 10.3% WACC. Consider as well that Uber shares are up 86% in 12 months, a period where the Dow Jones is up barely 5%.

It may well be a tech company, but one that is immune to inflation and is now able to survive without repeated capital injections. So if you’ve missed out on the growth story to date, there’s little further reason to hold out further.

What are the Best ASX Stocks to invest in right now?

Check our ASX stock buy/sell tips