Shares of ride-hailing and delivery giant Uber Technologies (UBER -0.38%) rallied 21.8% in February, according to data from S&P Global Market Intelligence.
Uber had a busy month, holding its fourth-quarter earnings report on Feb. 7, then holding its broader investor day on Feb. 14.
Investors were definitely feeling the love on Valentine's Day, with the stock jumping on management's aggressive three-year growth targets, along with the announcement of the company's first-ever buyback program.
Solid earnings and profit outlook lifts shares
In the fourth quarter, Uber's revenue grew 15% to $9.9 billion, with non-GAAP (adjusted) earnings per share (EPS) of $0.66 up 175% year over year. Both figures beat analyst expectations. Growth in the core business was actually better than that headline revenue figure, with gross bookings up 22% year over year, mobility bookings up 29%, and delivery bookings up 19%. Overall revenue was held back by a 17% decline in freight bookings, due to macroeconomic headwinds. But freight is a much smaller and less important part of the business.
While investors were encouraged by those results, the stock jumped in a more significant way one week later as management held a longer Investor Day presentation. During the presentation, it outlined how Uber still has a lot of growth runway left, even in "mature" markets where it's been operating for a long time. For instance, even in Uber's highest-penetrated markets, its penetration of people who take one monthly trip is still less than 20% of the population, with most markets at 10% or less -- including the U.S. at just under 10%.
On that note, Uber management laid out encouraging three-year targets, forecasting mid to high-teens annualized bookings growth, leading to operating leverage and high-30% to 40% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth over that time. Management also sees free cash flow tracking closer to EBITDA over time, reaching 90% of EBITDA, up from 60% in the 2021 to 2023 period.
Finally, Uber announced its first buyback plan, totaling $7 billion. While only amounting to about 4% of the company's current market cap, it's still encouraging that Uber will be aiming to grow bottom-line profits going forward and returning cash to shareholders, and not just pursuing profitless revenue growth as it did in the past before interest rates rose.
Uber is a strong franchise, but how expensive is it?
At first, Uber's stock looks quite expensive, at 45 times trailing EBITDA. However, if profits inflect higher at a 40% annual rate for the next three years as management expects, that would bring Uber's adjusted EBITDA to $11.2 billion by 2026, or about a 15 times multiple on today's market cap. That's certainly not that expensive for the dominant player in the ride-hailing space.
However, one thing to watch out for include stock-based compensation, which totaled nearly $2 billion in 2023 and is a real cost to shareholders not factored into adjusted EBTIDA. Another is the rise of autonomous vehicles, which could lead to some disruption of ride-hailing over the longer term.
