The current bull market has lifted some businesses more than others. Uber (UBER -2.42%) has been a clear beneficiary, as its shares have tripled since the start of 2023. The enthusiasm surrounding the company is at high levels right now.
Could this growth tech stock maintain its strong momentum to reach a trillion-dollar market cap by 2035? Here are the factors that investors should be thinking about.
On solid footing
Uber has been posting solid financial results. In 2023, gross bookings soared by 19% to $138 billion, helping drive a revenue increase of 17% to $37 billion. These figures are significantly higher than five years ago (though the growth rates are lower), indicating a much larger enterprise than before the pandemic. The company is completing more trips and has more users than ever.
Even with a presence in 10,000 cities across the globe, management is optimistic about Uber's long-term growth prospects. The primary objective is to bring in more customers who use more products and spend more on the platform.
Shareholders also have a lot to be encouraged about when it comes to Uber's profitability. Thanks to a combination of tighter cost controls and operating leverage, the company is finally starting to boost the bottom line. Uber reported its first-ever annual operating profit that totaled $1.1 billion in 2023.
And the business is generating free cash flow to the tune of $3.4 billion last year. As it keeps scaling up, it's reasonable to expect this number will march higher. Should earnings rise at a faster clip than revenue in the next decade, it's likely that share price gains will follow.
It's best to temper expectations
Uber has registered phenomenal growth since its founding in 2009. But it's natural that the pace of those gains will start to slow as the business matures. When it comes to attracting both drivers and riders, the low-hanging fruit has already been captured. It would be almost impossible for it to maintain its earlier monster growth indefinitely.
For Uber to grow from today's market cap of $155 billion to a market cap of $1 trillion by 2035, the business would need its value to increase by 545%. That would translate to annualized gains of 18.5%, an exceptional pace. While investors would cheer this outcome, they should temper their expectations.
That's because it requires lofty assumptions to even imagine Uber getting to the trillion-dollar mark. Perhaps it might find remarkable success in another industry it has yet to enter, or perhaps it will tap successfully into autonomous vehicle technology. However, this stuff is unpredictable and shouldn't be viewed as a sure thing.
To be clear, I don't believe this is a bad business, though. My view is the opposite. I think Uber is proving to be a quality enterprise. It's the market leader in the U.S. by far when it comes to ride-hailing, and second in food delivery behind DoorDash. Plus, it benefits from powerful network effects that should support its competitive standing for a long time.
Investors should also be thinking about the company's valuation and how it might change. As of this writing, shares trade at a forward P/E ratio of 34. This represents a sizable premium to both the S&P 500 and the tech-heavy Nasdaq-100 index. Over time, I'd expect this valuation multiple to contract, creating a headwind pushing against additional shareholder returns.
If you're hoping that Uber will hit a $1 trillion market cap by 2035, don't hold your breath. But it still could be a smart idea to consider buying the stock right now.
