Because of his long-term track record, retail investors closely follow the moves of Bill Ackman. The billionaire hedge fund manager runs Pershing Square Capital Management, which managed $12.6 billion in assets as of Dec. 31, 2024.
Ackman is known for running a concentrated portfolio full of what he believes are high-quality businesses. This is why it's worth pointing out that so far this year, the investment firm has purchased more than 30 million shares of one growth stock, which is a new position for the hedge fund.
Let's look at this compelling company and whether or not it makes sense for your individual portfolio.
Catching Ackman's attention
As of this writing on Feb. 21, Pershing Square's 30.3 million shares give it a $2.4 billion stake in Uber (UBER 0.36%). Ackman has been a longtime customer of the ride-hailing and delivery service, and he's pleased with the job CEO Dara Khosrowshahi has done turning Uber into a profitable growth enterprise. Ackman went so far as to post on X that he and his team believe that this is one of the "highest quality businesses in the world."
Those are some positive comments from a powerful hedge fund manager that definitely put Uber in a very favorable light. Investors should focus on the key financial drivers of Ackman's thesis.
Perhaps the most important factor is the belief that Uber's earnings per share (EPS) will surge in the years ahead. The view is that revenue will grow in the mid- to high-teens, thanks to the simple formula of more customers and greater usage and spend per customer.
Ongoing operational efficiencies should boost the bottom line. Uber's operating margin was 6.4% in 2024, more than double the year before. Controlling costs supports Ackman's estimate of more than 30% annual EPS growth in the years ahead. This will lead to tremendous free cash flow generation.
NYSE: UBER
Key Data Points
Powerful two-sided platform
Ackman also highlighted Uber's network effect, which helps support the company's leading industry position. This is precisely what makes up Uber's economic moat, which provides a durable competitive advantage that allows the business to keep rivals at bay.
As of Dec. 31, 2024, Uber had 170 million active users on the platform, with 8 million drivers in 70 countries. The ability to match rider demand with driver capacity is strengthened by a growing network of more users. If more drivers are available, wait times and prices are reduced for riders. And with more riders on the app, drivers spend less time idle and benefit from the ability to make more money.
Attractive valuation
Besides the quality of the business that drew Ackman's attention, his company started acquiring shares because of the compelling valuation. In the past 12 months, Uber shares are up just 3% (as of Feb. 21). However, consensus analyst estimates for 2025 EPS have jumped 21% in that time.
The elephant in the room when looking at Uber stock is the potential impact advancements in autonomous vehicle (AV) technology can have. Here's where Ackman and his team provide a direct response to that threat. In Pershing Square's view, AVs are still a long way from commercialization. Safety is a big concern, but there are also technical, infrastructure, and regulatory hurdles to clear.
What's more, as has been the case thus far, Uber is looking like the partner of choice for AV companies. It already has many partners in the space that all likely realize the powerful position Uber has due to its direct relationship with consumers who have built habits using the platform. That's hard to beat.
If Tesla or Alphabet's Waymo want their AV technology to gain broad adoption quickly, working with Uber might be the best ticket, as opposed to creating a new ride-hailing app from scratch. The latter will undoubtedly take time to scale up.
It's easy to be bullish on Uber after learning Ackman's thinking. Investors who agree should consider buying shares.
