The S&P 500 has advanced 14% in 2024. The index's strong start to the year means it has become increasingly difficult to find reasonably priced stocks. But certain Wall Street analysts see Uber Technologies (UBER 1.12%) and Roku (ROKU 0.26%) as undervalued.
- Brian Nowak at Morgan Stanley has outlined a bull-case price target that puts Uber at $120 per share by May 2025. That forecast implies a 71% upside from its current price of $70 per share.
- Nicholas Grous and Andrew Kim at Ark Invest have outlined a valuation model that puts Roku at $605 per share by December 2026. That forecast implies a 1,000% upside from its current price of $55 per share.
Spoiler alert: Both price targets seem overly ambitious, but Uber and Roku still warrant consideration. Here's what investors should know.
NYSE: UBER
Key Data Points
Uber: 71% implied upside by May 2025
Uber breaks its business into three segments: (1) Its mobility platform connects users with ridesharing services and other transportation; (2) its delivery platform allows consumers to order food, groceries, and alcohol from local restaurants and retailers; and (3) its freight platform connects shippers with carriers.
According to Bloomberg, Uber is the ridesharing leader in the United States, with a 76% market share, and it ranks second in restaurant food delivery (behind DoorDash), with a 23% market share. The same pattern holds globally. Uber has an important moat not only in its scale, which affords the company a data advantage that continuously improves its ability to dispatch and route drivers, but also in cross-platform synergies.
To elaborate, Uber is using cross-platform promotions to bring mobility users to the delivery app and to bring delivery users to the mobility app. Customer acquisition costs associated with cross-platform promotions are about 50% lower than other paid marketing channels, and Uber's efforts are bearing fruit. Reportedly, 31% of first-time delivery trips come from the mobility app, and 22% of first-time mobility trips come from the delivery app.
Uber reported solid first-quarter financial results. Revenue increased 15% to $10.1 billion on strong bookings growth in mobility and delivery services, offset by a decline in freight bookings. Some investors panicked because the company posted a generally accepted accounting principles (GAAP) loss of $654 million, much worse than its $157 million loss in the prior year. But that was due to a $721 million headwind arising from unrealized investment losses, excluding which Uber was actually profitable.
Wall Street expects Uber to grow sales at 14% annually through 2027, but that estimate leaves room for upside. The ridesharing and online food delivery markets are forecasted to expand at annual rates of 16% and 19%, respectively, through 2030. Uber also has adjacent opportunities in advertising with both platforms, a business segment that reached $900 million in annualized revenue in the fourth quarter.
Uber currently trades at 3.8 times sales, a discount to the five-year average of 4.3 times sales and a reasonable price to pay, given its growth prospects. Shareholders shouldn't expect a 71% return by May 2025, but patient investors should consider buying a position in this growth stock today.
Roku: 1,000% implied upside by December 2026
Roku helps streaming services and advertisers engage consumers. It monetizes subscription services by processing transactions through Roku Pay and ad-supported services by selling inventory and adtech software. It also sells inventory from its own ad-supported service, The Roku Channel.
Roku operates the most popular streaming platform in the U.S. as measured by streaming hours, and Roku OS is the best-selling TV operating system in the U.S. and Mexico. Additionally, The Roku Channel recently surpassed Peacock by Comcast and Max by Warner Bros. Discovery to become the seventh-most-popular streaming service in the U.S. The Roku Channel accounted for 3.9% of streaming time in May 2024, up from 3% in January 2024.
Roku reported encouraging first-quarter financial results, beating expectations on the top and bottom lines. Revenue increased 19% to $882 million, and its GAAP loss of $51 million was an improvement from the $194 million loss last year. Moreover, Roku generated positive free cash flow of $427 million, up from negative free cash of $448 million in the prior year.
Going forward, the investment thesis is simple. According to JPMorgan Chase, streaming media accounts for about 60% of TV viewing time among U.S. adults aged 18 to 49, but connected TV (CTV) ad spend accounts for just 30% of TV ad spend. Roku is well positioned to benefit as advertisers correct that discrepancy and shift their budgets toward CTV.
Roku currently trades at 2.1 times sales, near its all-time low of 1.7 times sales. Wall Street expects sales to increase at 12% annually through 2027, which makes the current valuation seem cheap. Moreover, the consensus estimate leaves room for upside. U.S. CTV ad spending is expected to increase by 13% annually through 2027. That gives Roku a reasonable shot at growing sales faster than Wall Street anticipates, especially given its early success in international markets.
As for Ark's price target, Roku shareholders have almost zero chance of 1,000% returns by 2026. Ark's valuation model assumes sales will increase at an annualized rate of 65% over the next seven quarters. That would be an incredible acceleration from the current trajectory. However, patient investors should still consider buying a position in this growth stock.
