Billionaire Bill Ackman, the CEO of Pershing Square Capital Management, is known for investing in cash-flowing consumer stocks and making contrarian bets.
For instance, he invested in Chipotle Mexican Grill in 2016, while the burrito chain was still reeling from its E. coli crisis. That investment has paid off handsomely: The stock is up roughly 600% since he first started buying it.
He also recently invested in Nike, another turnaround candidate, and owns large stakes in Hilton Worldwide and Restaurant Brands International, the parent of Burger King, Tim Horton's, and Popeyes.
Unlike most hedge fund managers, Ackman only owns a handful of stocks, so it's notable when he buys something. On Friday, he revealed on X that he'd begun to buy shares of Uber Technologies (UBER 0.36%) early in January, and had accumulated 30.3 million shares. The stock jumped 6.6% on Friday after he made the announcement, and as of the close of trading that day, Pershing Square's stake was worth roughly $2.26 billion.
Ackman gave credit to CEO Dara Khosrowshahi, who took the helm at Uber in 2017, saying he "has done a superb job in transforming the company into a highly profitable and cash-generative growth machine."
He also called the company "one of the best managed and highest quality businesses in the world" and said it was trading at a massive discount to its intrinsic value.
Image source: Uber.
Uber's transformation
Ackman isn't wrong about Uber's turnaround. Prior to its 2019 initial public offering, the ride-sharing operator endured scandal after scandal, culminating in early 2017 after a tweet calling on people to #DeleteUber went viral, tapping into already-existing animosity against the company and giving a sustained market-share boost to rival Lyft.
By 2019, Uber had put those setbacks behind it, but the company was still burning cash when it went public, and the stock quickly went south. The pandemic dealt it another blow as the ride-sharing market dried up amid social distancing.
However, at that point, management committed to turning the business profitable. Uber sold some of its operations and pulled out of markets where it wasn't the No. 1 or No. 2 player in ride-sharing, and sold off costly high-tech businesses such as its segments developing self-driving cars and air taxis. In the U.S. and elsewhere, it scaled back on rider and driver incentives that cost money in a scorched-earth market-share tactic that led to losses.
Those efforts have paid off. 2023 was Uber's first profitable year ever, and its 2024 results were even better.
Gross bookings grew 18% in 2024 to $162.8 billion, driving a similar increase in revenue to $44 billion. GAAP (generally accepted accounting principles) operating income more than doubled to $2.8 billion, and it reported nearly $7 billion in free cash flow. In contrast to the situation just a few years ago, the numbers across the board indicate a healthy, growing business.
Uber beat estimates on its top and bottom lines in the fourth-quarter report it delivered on Wednesday, and guidance called for a similar rate of growth in the first quarter, with gross bookings forecast to increase by 17% to 21% on a constant-currency basis to between $42 billion and $43.5 billion, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) predicted to grow by 30% to 37%.
Membership in Uber One -- a loyalty program that offers discounts and perks for Uber and Uber Eats -- grew by 60% in 2024 to 30 million, locking in customers and giving Uber another reliable revenue stream.
NYSE: UBER
Key Data Points
Is Uber a buy?
It's hard to find fault in Uber's numbers, and the stock looks reasonably priced at a forward P/E of 30.
However, the biggest risk to the stock is outside of the company's control. Autonomous vehicle technology continues to advance, and Tesla has said it will begin operating an autonomous ride-sharing service in Austin later this year. Alphabet continues to expand its Waymo ride-sharing service as well.
Investors are sensitive enough to Tesla's moves in this space that Uber stock has reacted to events like Tesla's Robotaxi reveal in October. Further news on this front is likely to continue to impact Uber stock.
However, Uber has partnered with companies like Waymo, Volvo, and Nuro to integrate autonomous vehicles into its network as they become available.
We're likely decades from a full transition to autonomous vehicles, so that strategy seems sensible, and Uber's current business model should be safe for the foreseeable future. In the meantime, investors should keep their eyes on autonomous vehicle developments, but Uber looks like a solid buy based on its steady growth, profitability, and valuation.
