Finally cash flow-positive, the business is revving for further growth
New York-listed Uber Technologies provides ride-hailing services. The company develops applications for road transportation, navigation, ride sharing and payment processing solutions, and serves customers worldwide.
Uber operates three main segments. The first segment is mobility, which refers to products that connect consumers with mobility drivers who provide rides in a variety of vehicles such as cars and motorbikes, and includes activities related to financial partnership offerings.
The next segment is delivery, which allows consumers to search for and discover local restaurants, order a meal, and either pick up or have the meal delivered. It also includes offerings for groceries and other select goods in certain markets.
The last segment is freight, which revolutionises the company’s proprietary technology, brand awareness and experience to connect carriers with shippers on the company’s platform, and gives carriers upfront, transparent pricing and the ability to book shipments.
Uber’s competitive advantage stems from its massive, efficient and intelligent network that consists of tens of millions of drivers, consumers, merchants, shippers and carriers, as well as underlying data, technology and shared infrastructure, which enables the network to become smarter with every trip.
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Second, Uber has leading technology through its proprietary marketplace, routing and payment technologies, which include demand prediction, matching and despatching, and pricing technologies.
Further, the company’s operational excellence enables it to use its extensive market-specific knowledge to rapidly launch and scale products to support drivers, consumers, merchants, shippers and carriers, along with building and enhancing relationships with cities and regulators.
Last but not least, Uber’s product expertise is one of its stand-out features, as its products are built with the expertise that allows it to set the standards for powering movement on-demand, provide platform users with a contextual intuitive interface, continually evolve features and functionality, and deliver safety and trust.
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For the company’s latest 3QFY2022 ended Sept 30, 2022, its gross bookings grew 26% y-o-y. During the quarter, trips grew by 19%, revenue by 72%, and adjusted Ebitda almost doubled from the previous comparable period. Also, operating cash flow and free cash flow were positive, a new record. The strong performance was attributable to strong demand for Uber’s offerings, better marketplace efficiency, and asset-light platform which enabled it to more than offset foreign exchange and inflationary headwinds.
Uber’s strategy includes focusing on growth in large markets in which it is not a household name yet, such as in Spain, Germany and South Korea. Further, new offerings provided by the company such as UberX Share have an overall positive impact on society and the environment, as it increases vehicle efficiency, lowers prices and aligns the interests of riders, drivers and the company. Currently, and moving forward, autonomous vehicles will lead to significant expansion in the company’s total addressable market, as it has the potential to improve safety, increase service quality and unlock new use cases, and will be the strategic focus of the company.
The company’s one-year total return was –29.1%, although its results are improving. Uber has finally turned cash flow-positive, after over six years, as shown in the chart. Financial safety-wise, Uber’s current ratio of 0.98 times could be better, but solvency is adequate with a net debt-to-equity ratio of 0.46 times. Overall, the business has finally turned cash flow-positive and is in line to achieve its goal of US$5 billion ($6.6 billion) in free cash flow by the end of next year, based on guidance and internal growth projections.
The stock has 43 “buy” calls, four “hold” calls and one “sell” call, with a consensus target price of over 60% above its current trading price of US$29.44. Based on our in-house valuations of the company, we believe that the intrinsic value of the company is around 40% above its current trading price. Uber is an attractive pick-up at current prices, as it is undervalued with attractive financials which will get even better over time.
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Photo Credit: Bloomberg
Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
