Uber Stock: Buy, Sell, or Hold?

Uber (UBER -0.38%) has taken investors on a wild ride since its IPO on May 9, 2019. The mobility and delivery service provider went public at $45 per share, and its stock rose to an all-time high of $63.18 during the apex of the meme stock rally on Feb. 10, 2021. However, Uber's stock subsequently sank to a record low of $20.46 on June 30, 2022, as rising interest rates drove investors toward more conservative investments.

Today, Uber trades at $47. Its rising take rates, expanding margins, and rising profits brought back the bulls over the past year -- but it's still just 4% above its IPO price. Let's take a fresh look at Uber and see if it's a stock to buy, sell, or hold.

Image source: Uber.

Uber's generating slower but stable growth

Uber's gross bookings fell 11% in 2020 as the pandemic disrupted its ride-hailing business. It partly offset that slowdown with the growth of Uber Eats, which more than doubled its gross bookings as more people stayed at home. After the pandemic passed, Uber's gross bookings rose 56% in 2021 and 83% in 2022.

But over the past year, its year-over-year growth in monthly active platform consumers (MAPCs), total trips, and gross bookings cooled off. That slowdown can be attributed to difficult comparisons against its post-pandemic recovery, stiff competition in the mobility and food delivery markets, and macro headwinds for its smaller freight business.

Data source: Uber. Year-over-year growth.

Yet Uber expects its gross bookings to accelerate again with 17%-20% year-over-year growth in the third quarter. That growth should be led by its overseas expansion, its new mobility options for two-wheeler and three-wheeler vehicles, more delivery options for non-dining businesses, and the introduction of new services like Uber Cash, Uber for Business, and Uber Health. Its MAPCs are also using its app more frequently, even as inflation boosted its average prices over the past year. 

Uber and its smaller rival, Lyft (LYFT 1.87%), should also face less regulatory pressure across the U.S. after a California appeals court earlier this year blocked an attempt to overturn Proposition 22, the ballot initiative that allowed gig economy platforms to classify their workers as independent contractors. 

Uber's take rate and margins are rising

Uber's take rate, or the percentage of each booking it retains as revenue, have risen significantly since its public debut. That expansion continued over the past year as it successfully hiked its average prices and wages without losing a lot of MAPCs.

Data source: Uber.

Those rising take rates, along with its recent cost-cutting measures, including thousands of layoffs since its IPO, are boosting Uber's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and operating margins.

In its latest quarter, Uber's adjusted EBITDA, as a percentage of bookings, more than doubled year over year to 2.7%. Its free cash flow (FCF) nearly tripled year over year to $1.14 billion, and it generated its first-ever operating profit on a generally accepted accounting principles (GAAP) basis with an operating margin of 3.5%.

The company expects its adjusted EBITDA to surge 88%-99% year over year in the third quarter -- which implies its adjusted EBITDA margin as a percentage of bookings will expand both sequentially and year over year to about 2.9%.

Uber has a low valuation but lots of insider selling

Uber's tighter financial discipline, improving scale, and rising profits should silence the bears who claimed its business model was unsustainable. Analysts expect its revenue and adjusted EBITDA to grow 18% and 123%, respectively, this year.

Based on those estimates and its enterprise value of $99.5 billion, Uber still looks cheap at less than three times this year's sales and 26 times its adjusted EBITDA. Lyft, which is growing at a slower rate with lower operating margins, trades about even with this year's sales and 20 times its adjusted EBITDA.

But over the past 12 months, Uber's insiders sold 277 times as many shares as they bought. Lyft's insiders bought 35 times as many shares as they sold during the same period. Uber's insider sales don't necessarily mean there's anything fundamentally wrong with the company, but it's a bit troubling that its insiders weren't eager to scoop up the stock at a discount to its IPO price over most of the past year even as its take rates and margins improved.

Nevertheless, I believe Uber is still a good stock to buy and hold at these levels. It doesn't make much sense to sell it right now, even if you're sitting on a big unrealized gain from the past 14 months, when brighter days are still ahead.