Uber (UBER -0.38%) has underperformed the market since its IPO in May 2019. The mobility and delivery services company listed its shares at $45, and it stayed below that level throughout most of the following four years before finally rallying over the past few months to about $62 as of this writing. A $100,000 stake in its IPO would be worth roughly $138,000 today, while the same investment in an S&P 500 index fund would have grown to $160,000.
Uber didn't initially impress investors -- it racked up steep losses, and its growth stalled out during the pandemic. However, its stabilizing post-pandemic growth, expanding margins, and improving profitability over the past year have brought back some bulls. Could Uber go on to generate millionaire-making gains from these levels?
Image source: Uber.
How has Uber fared since its IPO?
Uber suffered a major slowdown in 2020 as people hailed fewer rides on its mobility platform during the pandemic. That slowdown was partly offset by the growth of Uber Eats, which experienced a major growth spurt as restaurants closed their dining rooms.
Its business recovered throughout 2021 but slowed again in 2022 after it lapped its post-pandemic recovery. But over the past year, its growth in total trips accelerated again as bookings and revenue stabilized.
|
Metric |
2019 |
2020 |
2021 |
2022 |
9M 2023 |
|---|---|---|---|---|---|
|
Trips Growth (YOY) |
28% |
(27%) |
27% |
19% |
24% |
|
Gross Bookings Growth (YOY) |
28% |
(11%) |
56% |
19% |
18% |
|
Revenue Growth (YOY) |
37% |
(14%) |
57% |
49% |
18% |
Data source: Uber Technologies. YOY = year over year.
Uber attributes its recent growth to its overseas expansion, expanded mobility services for two-wheeler and three-wheeler vehicles, more delivery options for non-dining businesses, and the introduction of Uber for Business and Uber Health.
As Uber stabilized its top-line growth, it sold its lower-margin overseas subsidiaries in China, Southeast Asia, and Russia in exchange for equity stakes in the acquiring companies. It also divested its unprofitable advanced technologies group (ATG), which had mainly been developing driverless vehicles and drones. As Uber streamlined its business, its take rates (the percentage of each booking it retains as revenue) rose as its scale and pricing power enabled it to charge higher fees for its rides and deliveries. It also downsized its freight and recruitment divisions over the past year.
That tighter financial discipline lifted Uber's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) into positive territory in 2022. It's also stayed profitable on a generally accepted accounting principles (GAAP) basis over the past two quarters, and it expects its GAAP profits to continue rising in 2024. By comparison, analysts expect smaller rival Lyft to remain unprofitable on a GAAP basis through 2025.
Can Uber generate millionaire-making gains?
With an enterprise value (EV) of $131 billion, Uber trades at three times next year's sales and 22 times its adjusted EBITDA. Lyft, which has an EV of $4.3 billion, is valued at less than one time next year's sales and 14 times its adjusted EBITDA.
Uber might be pricier than Lyft, but it deserves the higher valuation based on its stronger business, and it still looks reasonably valued relative to other higher-growth tech stocks. For now, analysts expect Uber to grow its revenue at a CAGR of 16% from 2022 to 2025. They expect Lyft to grow its top line at a CAGR of just 10% during the same period.
Yet those estimates might be too conservative compared to the growth trajectory of Uber and Lyft's core markets. According to Grand View Research, the mobility-as-a-service market could grow at a CAGR of 39% from 2023 to 2030, while the online food delivery services market could expand at a CAGR of 19% from 2022 to 2030.
Assuming Uber's valuation holds steady and it grows its top line at a modest CAGR of 12% over the next 20 years, its valuation could rise tenfold to $1.3 trillion by 2043. So if you invest $100,000 in Uber today, it could eventually turn into over a million dollars if it continues to stay ahead of its competitors and expand its ecosystem of app-based services.
It's still a solid long-term investment
Few people will have that much money to invest in a single stock, so while Uber alone might not be enough to make you a millionaire, the company's future looks bright. It's growing at a steady pace, profits are rising, and the stock is affordable. Those are the key points investors should focus on when evaluating Uber as a long-term investment.
