Investors closely monitor the moves of billionaire investor Bill Ackman and his hedge fund Pershing Square Capital Management. Pershing has put up some great returns, particularly over the last five years. The fund only owns about a dozen stocks at any given time, giving the team at Pershing plenty of resources to do their homework and making each investment extremely important. Given the concentration of the portfolio, you know Ackman is not going to want to invest unless he thinks the setup is incredibly asymmetric. Of course, investors should do their own due diligence because hedge funds invest very differently than retail investors, and even the greats like Ackman are prone to mistakes. In a recent update, however, Ackman and Pershing called out one of their newer positions and said they think it will at least double within the next four years, and no, they weren't talking about Pershing's longtime holding, Chipotle.
Strong earnings growth and margin expansion ahead
Ackman on X recently disclosed that Pershing has taken a significant stake in the ride-sharing giant Uber (UBER 0.36%). Ackman said the fund now owns 30.3 million shares, which amounts to close to a $2.4 billion stake based on the current share price. Based on Pershing's holdings at the end of the third quarter, that purchase would make Uber Pershing's largest equity position.
In a recent presentation, Pershing laid out its investment thesis for Uber. Ackman and the team at Pershing said they believe that Uber's massive platform and network reinforces a strong supply and demand effect. They also cited an industry-leading management team led by CEO Dara Khosrowshahi. Above all, the Pershing presentation focused on Uber's improved financials and the likelihood of "robust margin expansion," strong earnings growth, and the return of capital to shareholders.
Ackman and Pershing also said that management's internal targets suggest at least 30% annualized earnings growth over the next several years, thanks to mid-to-high-teens top-line growth and share repurchases. They also cited the fact that Uber has a significant amount of fixed costs, which positions the company for operating leverage in the future. For instance, Uber has only grown total employees by 3% since 2019 while increasing total bookings by 20%.
The Pershing team also believes the market is discounting Uber's valuation on concerns over autonomous vehicles (AV). However, Ackman believes this risk is limited, and Uber is actually positioning itself to benefit from the rise of AVs. They also think that Uber's product and geographic diversity shield the company from the risk of AVs and that wide-scale AV use is still likely far away.
Long term, Uber could be a beneficiary of AVs. The company has partnered with several AV companies, such as Waymo and WeRide, and believes its massive customer base and deep experience in managing large ride fleets from an operational and regulatory standpoint position the company as a critical resource for the ultimate commercialization of AVs.
In one of their slides, Ackman and Pershing highlighted a bullet that said they think Uber's share price is likely to more than double over the next three to four years.
NYSE: UBER
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Will Ackman breeze through his Uber bet?
Ackman isn't the only one optimistic about Uber's earnings trajectory. Consensus estimates from Wall Street analysts suggest that after a decline in 2025, Uber is poised to grow diluted earnings per share by 37% in 2026, over 30% in 2027, and about 20% in 2028, according to estimates provided by Visible Alpha. I would expect shares to react favorably if Uber can generate this kind of earnings growth. Furthermore, the company does seem positioned to weather the AV storm and potentially gain from it. It's still no certainty that AVs will become mainstream, in which case Uber will continue to dominate the rideshare market. If they do, Uber has already positioned itself as a partner for these companies. Only time will tell whether Ackman breezes through his Uber bet, but I ultimately like the setup right now.
