Uber Stock: Buy the Dip?

Uber reported revenue increasing by 12% to 14.2 billion and operating profit increasing by 30% to 1.9 billion. And after these results were released, the stock price was down over 5%. So, what gives? And is this a buying opportunity? Those are the questions I'll answer while reviewing the company's latest financial update. >> I want to thank The Motley Fool for sponsoring this video. Visit fool.com/parkev for the 10 best stocks to buy now. >> Uber CEO said that they added more first-time users over the past 12 months than in any period over the company's past 5 years. That shows that the growth stage in this business is still in full cycle, and the company is likely to continue adding many more customers as the convenience advantage it offers sees the customers valuing that proposition significantly. Overall, gross bookings increased 24% to $58 billion. Remember, gross bookings is all the money that people are spending on the Uber platform. Uber doesn't take that all as revenue, but it's just all the money that's spent on the platform. Some of that goes to drivers, some of that goes to restaurants, some of that goes to other retailers, and Uber takes a percentage of all of those transactions. The more spending that's happening on the platform, the better it is for Uber. So, the revenue figures at 14.2 billion was less than what the company had forecasted and less than what investors were looking for, but the overall operating income growth was excellent at 30% compared to the 12% revenue growth. It's really benefiting from economies in scale. The actual business is performing well. The core business is performing well. The big question mark looms over the business, and that's driverless car technology and how the company is adapting to defend itself against that technology. And the good news is they have a lot of cash to work with. In the most recently completed quarter, they generated $2.9 billion in cash flow from operations, and free cash flow was about the same as the business stands right now. It's very asset-light. The drivers that are working on the platform, they bring the assets, the cars that are worth tens of thousands of dollars, and Uber doesn't need to invest in any of that. They just get to benefit from those drivers bringing their assets to the platform. In the future, with driverless car technology, Uber may need to invest in the autonomous vehicles that are working on its platform. That's the big question mark from our investors right now is how will the business adapt to these changing conditions. Investors were also disappointed in the forecast for gross bookings at 59.25 billion. That would represent growth of 20% at the midpoint. That would be a deceleration from the 24% growth the company just reported in the second quarter. But a figure that I watch very closely is monthly active platform consumers. I want to see this number continue increasing, and it did, to 208 million, up from 180 million in the same last year. That was a 16% increase. This is a signal to me that customers are using the platform regularly at least once every month and finding value. This is also a figure that gives Uber a competitive advantage for developing driverless car technology. They've been working with these customers for long periods of time, right? Not the same customer, but hundreds of millions of customers around the world for many years now, and they have that proprietary data. They know what customers want, when they want it, and how certain factors impact consumer demand. For instance, we just had the FIFA World Cup here in the United States. Uber understood how that would impact demand for ride-share and food delivery because they have experience with previous events of that size and magnitude and how it impacts demand in a region, in an area, how it impacts supply pricing etc. etc. And so, eventually, when driverless cars are more broadly available, Uber will have that data, that knowledge to know how many cars to deploy in what area, how many cars to increase in a certain area when there is an event, how many cars to decrease in a certain area when it's raining, how consumer demand is impacted by those changes in factors. Uber has all that data. Newer companies like Alphabet's Waymo, Amazon's Zoox, or Tesla will need to learn that on the fly and either underserve markets in some instances where they don't deploy enough vehicles, or in some instances overserve markets and have too many cars and inefficiently serve markets in that way. So, it'll take them more time to learn those things. Uber will be on the ground already running with that knowledge in hand. So, revenue in its delivery segment increased by 28% in the most recent quarter, whereas the mobility segment only saw a 1% increase. I saw the reasoning behind this. It was a change in pricing policy due to changes in insurance costs, etc., which decreased. And so, Uber passed along those changes to customers, thereby lowering the revenue, and thereby decreasing the growth rate. Overall, the food delivery business is less at risk of driverless car technology than the mobility business. The delivery business still gains great value from people and going in and picking up the meals from restaurants and walking your meal to, you know, maybe you live on the fourth floor, maybe you work in an office and you're ordering lunch. It's great value to have the person bring it up to you instead of going out and meeting an autonomous vehicle and picking up or taking out your food from that uh autonomous vehicle or robot delivery, whatever it might be. This part of the business is more insulated than the mobility business. We talked about the healthy cash flow. In the most recently completed quarter, its cash flow from operations increased from 2.6 billion up to 2.9 billion. For the full year, I'm sorry, for the 6 months, it's up from 4.9 billion to 5.2 billion. >> [snorts] >> Not very exciting growth rates there for the cash flow from operations, but the overall number 5.2 billion is solid to be sure. So, due to the slower than expected growth forecast for the third quarter, I'm revising lower my free cash flow estimate for 2026 by about 4%. I lowered my free cash flow estimate down to 10.5 billion. And that makes sense. The company so far this year has generated 5.2 billion dollars in cash flow from operations and spent about 100 million in CapEx, so they generated about 5.1 billion in free cash flow so far year to date. So, [snorts] if we annualize that, that will bring them to 10.2 billion, which would be below my estimate for 10.5 billion for 2026. So, I'm estimating a slight acceleration in free cashflow generation for 2026. And overall, I calculated a fair value of the business at $120 a share. The current market price after the 7% drop today is $67. It's one of the most undervalued in the market today because of that overhang of driverless car technology and the risk of how it could impact the business. Uh not just Uber losing business to other providers of rideshare using driverless car technology, but also how Uber's business could transform from an asset-light scaled platform business into one that needs to invest heavy capital into those autonomous vehicles and operate them on an owned basis rather than the contractors, the drivers bringing these vehicles to the company. So, there's notable risks there, but I think the risk versus reward is very attractive here, and I will be reiterating that I think Uber is one of the best stocks you can buy right now.