Are you on the fence about owning a stake in Uber Technologies (UBER -2.39%)? It's understandable if you are. The ride-hailing business still feels like it's on wobbly footing. Uber stock isn't exactly cheap, either, particularly following its 150% run-up over the past 12 months.
On balance, however, the argument for stepping into a new position in Uber is stronger than the argument against it. You'll just want to be a little patient if you're ready and willing to take that swing. To this end, here are the top three reasons you might want to buy Uber stock now.
Profits are (finally) exploding
On the off-chance you're not familiar, Uber is a ride-hailing company. It's tantamount to a taxi service; it's just managed more efficiently by the use of technology and contracted drivers.
Like most other companies, Uber started out in the red. It's no longer losing money, though. Since late 2022 it's been profitable more often than not. And it's expected to become increasingly profitable as time marches on, from last year's per-share earnings of $0.87 to this year's expectation of $1.34 to a projected profit of $2.17 per share in 2025.
UBER Revenue (Quarterly) data by YCharts
The funny thing is, the current bottom-line growth is taking shape much faster than the company's sales growth is. What gives?
In simplest terms, Uber finally has what all young, small start-ups ultimately want: scale. That is to say, it's now doing enough business to cover all of its variable costs (like paying drivers) as well as its fixed costs (like corporate rent, advertising, and management salaries).
The bigger the company gets, the wider its overall profit margin rates get simply because fixed costs tend to remain, well, fixed. This is why Uber's bottom line is able to grow so much faster than its revenue. To this end, analysts believe Uber's per-share profits will more than double between 2024 and 2026.
There's much growth ahead
There's more of the same degree of growth likely in store well beyond 2026, however, for a couple of not entirely related reasons. Both deserve their own look.
1. Same-day logistics and delivery
While the idea of paying a complete stranger for a ride in their personal car is no longer unusual, it's not exactly a high-growth business anymore. Mordor Intelligence predicts the worldwide ride-hailing market is set to grow at an annual pace of less than 9% through 2029.
Uber's drivers aren't just ferrying people from point A to point B, however. They're also delivering restaurant orders, and increasingly, delivering goods purchased online from a nearby store. This delivery business made up nearly one-third of Uber's fourth-quarter top line, and while not nearly as profitable as driving people around, this business's EBITDA nearly doubled year over year during the final quarter of 2023.
Here's why it matters: The so-called same-day logistics market is poised to grow by an average of more than 21% per year through 2030, according to Straits Research. The research outfit adds that the food delivery market is expected to grow at an annualized pace of more than 18% through the same time frame.
2. The aging of consumers works in Uber's favor
While driving people to where they want to go isn't a high-growth business any longer, it's one with a (very) long runway. It probably comes as no surprise that the most frequent users of ride-hailing services are millennials (aged 25 to 40). These people were largely raised in an era where mobile phones were the norm, with true smartphones being around for most of their adult life.
Most millennials are also now high earners, willing and able to pay for ride-hailing services despite -- more likely than not -- owning a car of their own.
Gen Z folks (aged from teens to 25) are also fans of ride-sharing options, having no meaningful memory of a time without smartphones. The chief reason they don't use such services more often is a lack of time, money, and reason. Even so, Uber recently made a point of changing the ages of who can ride in its drivers' vehicles, allowing people aged 13 to 17 as long as they have a parent's permission. That decision is telling of who the company's next big market may be.
As for Gen X (aged 40 to 60) and baby boomers (over 60), some of them will take an Uber. But by and large they don't. The premise is still just a little too unusual for most of these people.
Connect the dots. The younger a consumer is, the more willing they are to utilize their ride-hailing options. As the world ages, the more likely it is the average consumer will be comfortable with the idea of ride-hailing. Underscoring this bigger trend is the fact that young people are measurably losing interest in obtaining a driver's license. The Federal Highway Administration reports that between 1995 and 2021 the number of 16- to 19-year-olds with a driver's license fell from 64% to 40%.
Be patient, but not stubborn
The backdrop may be bullish for Uber. But do respect the fact Uber stock has soared since the end of 2022, bumping into a record high in February of this year before finally stalling. Most of that big gain is still intact. The fact that the advance has stalled at all, however, suggests the bulls are suddenly exercising caution. That's a hint in and of itself, potentially warning that a few too many investors may now be entertaining second thoughts about this stock's frothy price. Trade accordingly.
That said, also know that it's easy to be too cautious -- and too stingy -- when waiting for a better entry point for a stock. If you're interested in owning a piece of Uber, it's still better perhaps to jump in a little too early than it is to wait too long before making your move. This is a stock that doesn't seem to fall very far when it falls, or stay down all that long when it does.
