For the last several months, financial headlines have been dominated by Big Tech's progress in artificial intelligence (AI). One of the more subtle tech success stories in 2023 is Uber Technologies (UBER -0.38%), a stock that is up an eye-popping 95% year to date.
Despite this momentum, several on Wall Street believe the best is yet to come. Uber stock could very well be headed to all-time highs. Moreover, after learning more about its business, some investors may be compelled to hold the stock for the long term, as Uber could be headed toward a very exclusive club.
More than a side gig
Uber is definitely one of the pioneers of the gig economy. But what started off as a new, innovative way to hail a taxi has evolved into much more than on-demand rides.
Uber currently segments its business into three categories: mobility, delivery, and freight. Mobility is where the company's roots lie and is its largest revenue driver. The delivery segment allows consumers to order from restaurants or even grocery and alcohol stores and have goods delivered to their door. Lastly, the company's smallest segment, freight, is Uber's homegrown logistics marketplace.
By expanding into other products and end markets, Uber has been able to separate itself from the competition. Moreover, these augmentations to the business directly impacted Uber's financial results across the top and bottom lines.
For the first quarter of 2023, Uber grew its revenue 29% year over year to $8.8 billion. Additionally, the company's net loss of $157 million, or $0.08 per share, illustrated that Uber is very close to breakeven and potentially turning profitable.
From a geographic standpoint, Uber's Europe, Middle East, and Africa (EMEA) segment grew by 86% in Q1, higher than any other region. I found this particularly encouraging because just a few days ago, Joe Terranova of Virtus Investment Partners made an interesting point during an interview on CNBC that Europe is currently in an economic contraction. For this reason, Uber is likely not experiencing peak demand and business in this region, implying there is much more opportunity there.
This observation becomes even more relevant when you consider that Uber boasts 130 million monthly active platform consumers (MAPCs). Given that this figure is likely deflated due to hazy economic conditions, long-term investors should be encouraged as Uber still has mammoth potential.
Image source: Getty Images.
On top of these growth prospects, one of the savvier moves Uber has made is how it allocates capital. Over the last few years, the company has made some splashy acquisitions -- namely, alcohol delivery service Drizly and food delivery platform Postmates. Furthermore, Uber invested billions of dollars in tangential services. For example, the company has equity stakes in electric scooter company Lime, as well as Grab, a competing service to Uber in Southeast Asia.
These moves have directly impacted Uber's business, especially as it pertains to the mobility and delivery segments. As Uber continues to build its empire, it is tempting to think the company may be on its way to the trillion-dollar club.
The valuation is compelling
To be up front, Uber is still far from a trillion-dollar market capitalization. The company's current market cap is $95 billion, implying it needs to 10x from here to reach a trillion.
Nonetheless, Wall Street seems to be buying into Uber's investment thesis. JPMorgan, in particular, recently listed Uber as one of its top picks. Moreover, in July alone, several financial institutions, including Evercore, Roth MKM, and Tigress Financial, published research reports with "buy" or "buy equivalent" ratings on Uber stock.
Among this cohort, the estimated price target for Uber stock ranges from $59 per share to $75 per share, implying the growth stock is massively undervalued and could surge as much as 60% from current trading levels.
Bearing that in mind, long-term investors should zoom out and take a close look at Uber's valuation ratios. As of the time of this article, Uber trades for 2.8 times price to sales (P/S). Considering the company is knocking on the door of profitability and has demonstrated its ability to identify and integrate acquisitions to make inroads in new end markets and jump-start growth, investors could argue that Uber stock is trading at a discount.
For what it's worth, investors may also want to consider that Uber topped The Motley Fool's list of undervalued growth stocks in 2023. A prudent strategy is to dollar-cost average into the stock over the long term and keep an eye out for growth across all segments and geographies, expanding margins and its profitability profile.
