What do I know about Uber Technologies? Well, I’ve used its service for several years fairly regularly including Uber Eats.
The ride-sharing company expanded rapidly around the world, bleeds money and is not profitable.
Uber has been involved in a ton of lawsuits.
And its previous CEO got the boot for being a jerk. That’s about it.
But as an investment is Uber undervalued?
Boyar Research is run by President Jonathan Boyar. He and his team have consistently outperformed the S&P 500 the last several years.
Boyar specializes in undervalued companies and he says Uber is one of them and that the stock could more than double in the next year.
Here is his summary as to why.
- Continued recovery in Mobility should boost growth and drive operating leverage (35% 2023E adjusted EBITDA margin).
- Stability and even growth in Delivery despite the economic reopening should solidify the Delivery model in investors’ minds.
- After achieving adjusted EBITDA profitability, a faster-than-expected ramp in profitability could surprise investors.
Uber Technologies operates ubiquitous ride hailing (Mobility) and Delivery businesses (Uber Eats) that are global leaders.
After rapid scaling of Delivery ($51 billion in 2021 estimated gross bookings or GBs) during the pandemic, the two businesses should generate GBs of ~$85 billion in 2021 and ~$100 billion on a normalized basis (56% above pre-pandemic levels).
Uber achieved its first positive adjusted EBITDA quarter in 3Q 2021, and profitability should scale significantly, but shares are down 41% from the highs, and Uber is currently trading for just ~13x 2023 estimated Mobility EBITDA after adjusting for ~$12 billion in equity stakes.
CEO Khosrowshahi believes shares are undervalued, recently saying:
“We’ve never been in a better position” after purchasing 200,000 shares in the open market for ~$45/share.”
After years of exiting money-losing markets/businesses (accumulating equity stakes in leading competitors along the way), Uber is leaner and focused on massive opportunities in Mobility, Delivery, and Freight, and deal-making has shifted to offence.
The late 2020 acquisition of Postmates ($2.7 billion in stock) was followed by the acquisitions of alcohol delivery startup Drizly in October 2021 ($1.1 billion in stock), the remaining interests in grocery company Cornershop, and logistics company Transplace (~$2.3 billion in cash and stock) to support Uber Freight.
Uber also entered a partnership with startup GoPuff, which sells convenience items to consumers through its own “dark stores” (fulfillment centres specifically built for delivery).
The current valuation is overly punitive of regulatory and competitive concerns, with leading competitors trading for higher multiples.
DoorDash and Lyft, smaller North American-specific competitors, are trading for 12.7x and 4.5x revenue, respectively, compared with 4.6x for Uber, a global leader in both businesses.
We value Uber on a sum-of-the-parts basis, employing a multiple of 7.5x 2022 estimated revenue for Delivery (implies ~23x the EBITDA power of the business), the same 7.5x revenue for Mobility (~27x 2022E EBITDA), and 7x EBITDA for Corporate expense.
Summing these components with Freight valued at its recent private funding round ($3.3 billion) and the equity stakes (~$12 billion) results in an intrinsic value estimate of $79/share (108% upside).