The stock market's impressive performance last year propelled some companies to new heights. Just look at Uber (UBER -0.38%).
This gig-economy stock has more than doubled in the last 12 months, and it recently hit a fresh all-time high. It's clear that investor sentiment around the ride-sharing service is soaring. But could shares of this transportation-as-a-service business rise about 50% between now and the end of the year to reach $100?
Recent business results
In the third quarter of 2023, Uber's financial results missed Wall Street expectations. At first glance, this might seem like a disappointment, but the business is still doing well.
Revenue was up 11% year over year to $9.3 billion, and gross bookings in both the mobility and delivery segments increased by more than 18%. These figures indicate that Uber is posting healthy growth, and it has achieved two straight quarters of positive operating income.
This is particularly encouraging when we look at the company through the lens of the macroeconomic environment. On the Q3 earnings call, CEO Dara Khosrowshahi said the company is seeing no weakness from consumers.
He also mentioned that compared to pre-pandemic levels, spending on services has still not fully caught up in relation to goods. This suggests there should continue to be positive demand trends for Uber's services.
Nonetheless, I believe it's smart for investors and executives to adopt a cautious perspective. There's still a possibility that the economy will enter a recession this year, and that could negatively impact Uber's financial performance.
Protected by a moat
One of the most attractive characteristics of Uber's business is how it benefits from network effects. Because more riders use its app, Uber's platform becomes more valuable for drivers looking to make money since it gives them access to a bigger customer base. Meanwhile, a larger driver base means a better experience for riders, with better pricing and reduced wait times.
In the third quarter, Uber counted 142 million monthly active users. Plus, the delivery service reported completing more than 2.4 billion trips, up 25% from the prior-year period. These metrics demonstrate the scale of Uber's operations.
The company's ability to collect massive amounts of data is also becoming an advantage. Consider how much time people spend on the Uber app, whether they're trying to book transportation or looking for something to eat. That's a lot of attention that can be monetized.
Based on this, it's not a surprise the business is now in the digital advertising space. "We think we're well on our way to $1 billion-plus, which was a target for our ad business that we set a few years ago," Khosrowshahi said about the segment's success and goals. This is on the way to becoming a lucrative segment for Uber.
Changes in sentiment
For Uber stock to hit $100, it would have to post a remarkable gain of about 50% (based on the price on Jan. 19). A return like that in just one year would certainly be cheered by investors, particularly after the stock's monster performance of the past 12 months.
Even if we assume the underlying business performs extremely well this year as more favorable economic conditions lead to stronger demand for rides and delivery services, the stock isn't automatically guaranteed to soar. Investors must also factor in potential changes in market sentiment, which can have a huge impact on share prices in the near term.
As of this writing, Uber's stock trades at a price-to-sales multiple of 3.7. This is a discount to its historical average. But it's unknown what this valuation ratio will be at the end of this year. Even if it remains the same, I don't think it's likely that sales will skyrocket by 50%.
Therefore, I wouldn't bet on the stock climbing 50% in less than 12 months. Investors hoping for $100 per share should temper their expectations.
