Uber Technologies (UBER 1.75%) went public nearly four years ago, but it still trades about 30% below its IPO price of $45. The bears outnumbered the bulls as the pandemic throttled its growth, inflation tempered its post-pandemic recovery, currency headwinds gobbled up its overseas revenue, and it faced persistent threats of tighter regulations.
Yet, those challenges also masked a lot of its progress over the years. So today I'll focus on three positive aspects of Uber's business that smart investors shouldn't overlook.
Image source: Uber.
1. It's streamlining its business
Uber has taken a lot of steps to streamline its business. In 2016, it sold its Chinese division to competitor DiDi Global in exchange for an 18% stake in the company. DiDi also invested $1 billion in Uber as part of that deal.
In 2018, Uber consolidated its operations in Russia, Armenia, Azerbaijan, Belarus, Georgia and Kazakhstan, then merged them with the Russian tech company Yandex's ride-hailing division to create a new joint venture. Yandex eventually bought out Uber's stake in that joint venture for $703 million in April.
Also in 2018, Uber sold its Southeast Asian business to the regional leader Grab and took a 27.5% stake in the company. In 2020, it sold its Indian food delivery unit to Zomato and also took a 10% stake in that company. In 2021, Uber sold its advanced technologies group (ATG), which had been developing driverless vehicles and autonomous drones, to self-driving start-up Aurora for $4 billion. Uber also invested $400 million in Aurora.
All of those deals reduced Uber's direct exposure to riskier and more capital-intensive markets, but it stayed invested in their long-term growth through more conservative equity stakes. If we look back at Uber's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) over the past three years, we can see the clear impact of those divestments.
|
Metric |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|
|
Revenue |
$11.27B |
$14.15B |
$11.14B |
$17.46B |
$31.88B |
|
Adjusted EBITDA |
($1.85B) |
($2.73B) |
($2.53B) |
($774M) |
$1.71B |
Data source: Uber Technologies.
2. It just scored a major victory in California
Uber has repeatedly faced calls to reclassify its drivers from independent contractors to employees in the United States. But Uber -- along with its gig economy peers Lyft and DoorDash -- claim those changes would crush its margins, cause prices to soar, and reduce drivers' wages.
A major flashpoint in that battle is California, where the anti-contractor Assembly Bill 5 (AB5) went into effect in January 2020. Uber, Lyft, DoorDash, and their peers rallied against AB5 with Proposition 22, a ballot measure that excluded gig economy platforms from those new regulations. Prop 22 was passed in late 2020, but subsequently ruled unconstitutional and "unenforceable" by a lower court judge last August. That unexpected ruling cast a dark cloud over Uber's future and suggested that other states could follow California's lead and strike down gig economy platforms.
But this March, an appeals court overturned the lower court's ruling and upheld Prop 22. It will likely still face other legal challenges, but that victory indicates that regulators won't render Uber's business model obsolete anytime soon.
NYSE: UBER
Key Data Points
3. It resolved its driver shortages before Lyft
Uber is bigger than Lyft, but it's still growing at a much faster rate. Lyft's number of active riders only grew 9% at the end of 2022, compared to its 14% growth at the end of 2021, as it struggled with a persistent shortage of drivers. But Uber -- which generated nearly eight times as much revenue as Lyft last year -- had largely resolved its driver shortages in the first half of 2022. As a result, Uber's total number of trips rose 20% in 2022 on top of its 27% growth in 2021.
Uber CEO Dara Khosrowshahi also briefly moonlighted as an Uber driver last year to assess driver complaints and find ways to attract new drivers. The experiment prompted the company to streamline the sign-up process, revamp its navigation tools, address the practice of "tip baiting," and change the ways it calculated its payout for drivers.
Lyft's new CEO, David Risher, who took over in April, recently followed that example and spent some time as an undercover driver. However, it remains to be seen if Risher can turn around Lyft's struggling business and attract more riders and drivers.
Do these strengths make Uber a better investment?
I believe Uber's rising profits, waning regulatory headwinds, and focus on improving the working conditions for its drivers make it a solid long-term investment. It also looks like a bargain at less than two times this year's sales -- so its stock is well-poised to bounce back like a coiled spring once a new bull market finally starts.
