With a $175 billion market capitalization, Uber Technologies (UBER 2.40%) has become a well-known global enterprise. This is a tremendous accomplishment, considering the business was founded just 16 years ago. Finding a clear need in the market and creating an innovative platform to serve its users has been the key to the company's success.
Investors who were able to ride the ups and downs in recent times have been greatly rewarded. The transportation-as-a-service stock is up an impressive 284% in the past three years (as of June 23) but currently trades 11% below its peak. Even after the company's phenomenal gain, investors might still consider buying Uber stock.
Here are three reasons why.
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Growth
A company like Uber that registers rapid adoption does so because its product or service is solving a problem. In this instance, Uber was able to leverage the desire for people and restaurants to generate more income, the amount of time that vehicles sit idle, and demand from consumers for convenience.
As a result, Uber's growth has been noteworthy. Gross bookings totaled $42.8 billion in the first quarter, which was up 171% from the same period five years prior. The company's revenue and user base has soared, as well.
Looking ahead, the gains should continue. According to Wall Street consensus analyst estimates, Uber's revenue is projected to grow at a compound annual rate of 14.4% between 2024 and 2027.
Management believes there's a meaningful opportunity ahead. For example, Uber is registering faster trip growth in the suburbs than in urban areas. Even in the company's biggest markets, only a small percentage of the adult population is an Uber customer. The company can also push greater frequency, as half of its customers take only one or two trips per month (as of Q4 2023).
Autonomous-vehicle (AV) technology was once perceived as a major threat to Uber's business, as the view was that these software providers would launch their own robo-taxi services. However, the perception is changing, with Uber looking like a beneficiary. The business has numerous partnerships in place with AV companies, thanks to Uber's massive user base and established tech platform.
CEO Dara Khosrowshahi now thinks that AV technology could seriously boost Uber's total addressable market. The objective of AV tech is to drastically lower the cost of transportation. If this happens, then demand from consumers to move around should soar. "I am more confident than ever that Uber is uniquely positioned to capture the $1 trillion+ opportunity that autonomy will unlock in the U.S. alone," he said on the Q4 2024 earnings call.
Moat
Legendary investor Warren Buffett's philosophy centers on finding companies that possess an economic moat. Businesses that have this durable competitive advantage can fend off rivals and new industry entrants for a long time.
Uber's key moat is the presence of a network effect. With 170 million monthly active users and over 7 million drivers, the platform is incredibly valuable to all stakeholders. As the company grows, the experience constantly improves for everyone. The same applies when you consider the number of restaurants plugged into the Uber network, as well.
The company also benefits from an intangible asset, which is its ability to collect data on trips, which helps to improve the service. This can lead to more usage over time. Uber has also successfully leveraged its data to find a new money-making opportunity. Digital advertising efforts brought in $1 billion in annualized revenue in Q2 last year.
Valuation
Uber is a growth enterprise that has competitive strengths. Investors have landed on a high-quality business. However, the final reason to consider buying the stock comes down to valuation. Even after the stock's monster performance in the last three years, the valuation is reasonable. As of June 23, shares trade at a forward price-to-earnings ratio of 22.8.
Investors interested in owning a disruptive, tech-forward company with growth potential and a moat should look at adding Uber to their portfolios.
