Uber: the ride-hailing giant grows into a profitable powerhouse
Redacción Mapfre
Jonathan Boyar, director of Boyar Value Group and advisor to the MAPFRE AM US Forgotten Value Fund
Once synonymous with cash-burning Silicon Valley startups, Uber Technologies (ticker: UBER) has undergone a remarkable transformation. Under the stewardship of CEO Dara Khosrowshahi, the company has matured into a financial juggernaut, blending its dominance in ride-hailing with a fast-growing food delivery business and a promising advertising segment. For investors, Uber represents a compelling mix of growth and value, with shares poised for further upside which is why we have made it the largest position in The Mapfre U.S. Forgotten Value Fund.
From mobility to multi-platform synergies
Uber’s name has become a verb, a testament to its cultural significance and dominance in the ride-hailing market. The company’s Mobility segment, which generated 53% of its 2023 revenue, remains its crown jewel, commanding a staggering 76% share of the U.S. market. Meanwhile, its Delivery arm, led by Uber Eats, accounts for 33% of revenue, with a burgeoning footprint in food delivery.
What sets Uber apart is the synergy between its core businesses. Drivers can fluidly switch between rides and deliveries, maximizing efficiency. At the same time, Uber leverages its ecosystem through Uber One, a loyalty program that encourages cross-platform use. With more than 25 million members spending three times as much as non-members, the program is a cornerstone of Uber’s strategy to boost customer retention and predictability.
Rides rebound and deliveries stick
Uber’s Mobility segment has rebounded strongly from pandemic lows, with gross bookings (GBs) hitting $79.5 billion over the past year—a 23% jump from 2022. This recovery has allowed Uber to implement premium pricing without denting demand. The result? A 31% increase in Mobility EBITDA to $1.7 billion in the latest quarter.
Delivery, meanwhile, defied predictions of a post-pandemic slowdown. Gross bookings climbed 17% year-over-year to $71.5 billion, while segment EBITDA surged 52% to $628 million in Q3 2024. The sticky habit of app-based food ordering has become a structural tailwind, even as DoorDash continues to hold the top spot in the U.S. delivery market.
Expanding the ecosystem
Uber isn’t resting on its laurels. The company’s recent moves signal an ambition to become an all-encompassing mobility and delivery platform. In May, Uber partnered with Instacart to integrate grocery delivery into its ecosystem, deepening penetration in suburban markets. The acquisition of Delivery Hero’s foodpanda operations in Taiwan for $950 million, though pending regulatory approval, further cements Uber’s foothold in Asia.
Another bright spot is Uber’s nascent advertising business. With a $1 billion annualized revenue run rate, the segment capitalizes on Uber’s 160 million monthly active users, offering high-margin opportunities. From journey ads shown to riders to in-app promotions for delivery partners, advertising could significantly boost Uber’s profitability over time.
Financials shift into high gear
For years, critics doubted Uber’s ability to turn a profit. Those doubts are now firmly in the rearview mirror. Uber is on track to generate $7 billion in free cash flow this year, a dramatic turnaround from a $4.9 billion cash burn in 2019. Its asset-light model, requiring less than 1% of revenue for capital expenditures, has been key to this transformation.
Uber’s balance sheet reflects its newfound financial discipline. As of Q3 2024, the company held $9.1 billion in cash and short-term investments against $11.6 billion in debt, resulting in a leverage ratio of just 0.4x. A $7 billion share repurchase program underscores management’s focus on returning value to shareholders.
Addressing the autonomous threat
Autonomous vehicles (AVs) remain a looming question mark for Uber, with Tesla and others touting robotaxi ambitions. But Uber’s strategy of partnering with AV leaders like Waymo instead of building its own technology has proven prudent. This capital-light approach positions Uber to integrate self-driving technology without shouldering R&D risks.
Notably, Tesla’s much-anticipated robotaxi event in October failed to deliver game-changing details, prompting a relief rally in Uber shares. Should AVs gain widespread adoption, Uber’s platform dominance and ability to integrate driverless fleets could turn the perceived threat into an opportunity.
A stock on the move
Uber is not a “traditional value” investment. Trading at 24 times trailing EBITDA, the company isn’t “cheap,” but its accelerating profitability supports the valuation. With gross bookings expected to grow at a mid-teens pace over the next few years, EBITDA could compound at more than 30% annually through 2026. Our research values Uber at $109 per share, ~50% above its current price. Even with a more conservative multiple, the stock could still offer nearly 40% upside, underscoring its potential as a long-term winner.
The bottom line
For investors seeking exposure to a platform with growth potential and a defensive moat, Uber is hard to ignore. With its Mobility and Delivery businesses firing on all cylinders and an expanding advertising arm, Uber is positioned to drive significant shareholder value in the years ahead and is why we have made it the largest investment in The Mapfre US Forgotten Value Fund.
