Uber Technologies Inc (Uber) went public on May 9, 2019 and has since been a divisive topic among investors. While some believe Uber is a disruptive force in transportation, others see the business as a highly commoditized service.
The company was launched in March of 2009 by co-founders Travis Kalanick and Garrett Camp as a simple mobile app which would theoretically allow a consumer to request a ride from gig workers rather than from a Taxi service. Since that point, Uber’s product offerings have grown more sophisticated.
While Uber continues to maintain its ride service business, the product has evolved to include various tiers of luxury and even a carpooling option. Ten years later, this business is continuing to experience rapid growth. The company also claims to have 76% of 2019’s gross bookings as it pertains to the “rides” business.
Growing in relevance is their food delivery service, Uber Eats, which seems to be spoken about just as much (if not more) than the core business. One of their chief competitors, Postmates, was even just acquired by Uber for $2.65 billion. Uber Eats teams up with restaurants to deliver meals to their customers. The delivery is executed by gig workers, much like their core business.
One of the company’s newer segments is “freight”. Freight pairs ground carriers with shippers. This segment still has room to grow considering its recency and it only making up approximately 1% of Uber’s gross bookings in 2019. Freight allows Uber to gain exposure to business spending and embed itself as a core piece of infrastructure.
Another new segment that emphasizes Uber’s gig worker model is the “work” product which pairs freelancers with companies that are working for labor to meet short-term needs. This product is only available in Chicago, Miami, and Dallas as of writing this.
Uber is also targeting intracity transportation (also referred to as the micro-mobility segment) with a $170 million investment in the electric scooter company Lime. At the time of this investment, Uber also announced that their existing micro-mobility play, Jump (which operates both electric bikes and scooters), would be acquired by Lime.
Uber Elevate is a division which is operating and researching multiple product offerings. Currently, Uber Copter is offered through the Elevate division and currently allows helicopter rides between Manhattan and JFK International Airport to be booked directly from the Uber app. Additionally, the Elevate team is working to develop Vertical Takeoff and Landing (VTOL) vehicles that would be available for ridesharing within select markets. The company is projecting that this product will be available by 2023.
The company also recently announced Uber Money which allows a spectrum of financial products such as a debit card, wallet, and budgeting tools.
Finally, Uber has a Business division which builds on the Rides and Eats products through office meals, courtesy rides, commuting, etc. The Business division also leverages tools such as integration with their API to better serve their business partners.
They also have a spectrum of smaller offerings (such as healthcare and boat rides) and will likely continue to expand on their offerings.
The leadership team features Dara Khosrowshahi as the CEO who was previously the CEO of Expedia, CFO of IAC Travel, and received a degree in Electrical and Electronics Engineering at Brown University. The team also notable features Eric Meyhofer as the Head of Advanced Technology Group (ATG). The ATG is responsible for innovative new technologies such as autonomous vehicles. Eric previously attended and was employed by Carnegie Mellon in addition to starting various robotics companies. It is also worth noting that neither co-founder works for the company anymore nor do they sit on the board.
It seems as if Uber has at least three major innovative missions: Autonomous Vehicles, Uber Elevate, and the Gig Economy.
Autonomous vehicles have the potential to change Uber’s business. Labor costs have the potential to be affected positively. Although, it is uncertain whether autonomous vehicles would be available in every market or if they would only be available on pre-determined routes with few variables and the lowest potential for error.
Not only does paying workers per job they complete make sense for a business (as you are converting labor to a true variable cost), it also has the potential to empower the workers. Finding a conventional job can be a relatively long process compared to signing up with Uber. This promotes short-term earning potential. Additionally, it allows for workers to create “side-hustles” on their own terms without giving up the security of their day job. Of course, it is a valid option for a worker to make a full-time income for themselves as well.
As of today (July 12, 2020) Uber (NYSE: UBER) is trading at $33.14. This represents a decrease of approximately 26.4% from its IPO price of $45. It has a market cap of $57.46 billion while trailing twelve months sales are about $14.59 billion putting it at a multiple of just 3.94. Admittedly, 3.94 is not necessarily a low P/S ratio generally speaking; however, Uber is trading more like a utility than a growth stock. The company is still growing with an average revenue increase of 34% for the past three years as well as emerging segments which have a long runway before they hit maturity.
On the other hand, the company still has not hit profitability but did have projections of profitability by 2021 before the pandemic hit. Of course, this guidance was pulled, but it does demonstrate the emphasis that is being placed on the matter. Additionally, the company has nearly $14 billion in liquid assets to tap until it hits profitability (not to mention huge equity stakes in leading international rides businesses) and no shortage of access to capital.
Uber has the first-mover advantage in an industry that is here to stay and continues to make strategic investments in new technologies as well as its long-term financial health and market position. Uncertainty around the company’s future profitability is keeping some investors away but it seems likely that profitability is around the corner. The stock may take a hit in the short-term while this pandemic continues; however, I am bullish on the company’s future.
Rating: Strong Buy
Disclosure: I am long on Uber Technologies (NYSE: UBER) as of July 12, 2020.